[Recorded by Electronic Apparatus]

Friday, November 1, 1996

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[English]

The Chairman: Order, please. Pursuant to Standing Order 108.(2), the natural resources committee is continuing its study of rural development. I'm particularly pleased to welcome my colleagues here to Huntsville to participate in today's hearings.

As all of you know, we began this process back in the spring in the House in Ottawa. We heard from a number of witnesses. This past week and again next week we are having an opportunity to travel across Canada to obtain testimony and the perspective of people who operate on this file locally. I'm pleased today to begin our deliberations with, from the Parry Sound Area Community Business and Development Centre Inc., Tim West and Bill Spinney.

I understand, gentlemen, you'll each do a five-minute presentation. Then we'll open it to questions from the members.

Mr. Spinney.

Mr. Bill Spinney (Economic Development Officer, Parry Sound Area Community Business and Development Centre Inc.): Thank you very much, Andy.

Good morning, ladies and gentlemen.

Barriers to economic development in west Parry Sound.

Economic development means many things to many people. My purpose here today is not to define it but rather to find ways to stimulate it.

A good starting point may be closer than we think, inside our own hearts and minds. The attitude we bring to any given situation will inevitably have a great bearing on its outcome.

West Parry Sound has its share of problems. They are real, some quite formidable, but not insurmountable. With the help of Industry Canada and other partners the Parry Sound Area Community Business and Development Centre is attempting to provide the positive spark that will bring long-term sustainable growth to our community.

I'll briefly discuss four main barriers we experience in west Parry Sound and some of the steps we're attempting to make to overcome this barriers. The first is local political will.

There are factions within our community, as there are in every community, I am sure, that continue to frustrate almost any initiative that will result in change that would see their stake in the area threatened. Personal grudges and biases carried for decades do little to enhance our image for those who look to invest in our area.

Times are changing, however. All levels of government are in the downsize mode. ``Cooperation'', ``partnerships'', and ``rationalization'' are key words in the struggle to cope with this change. Our organization is meeting with some level of success as we bring all levels of government to the same table and discuss the problems we all share, how we can share the solutions, and how we can do that with less money.

Second is access to capital.

Our banking industry has had a devastating effect on the Canadian economy as a whole, but the impact has been far more dramatic in rural Canada. Your local banker no longer has the autonomy to make the most trivial of lending decisions or the ability to impact on policies made on Bay Street. You can appreciate the difference in urban versus rural lending. The local knowledge and feeling one develops in rural lending situations is gone. Credit scoring and government guarantees are the order of the day.

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The Community Business Development Centre has attempted to fill the void through the lending portfolio we manage. Local input, local decisions, recognition of risk, pricing for that risk, and utilizing our small dollars to lever larger ones are a key role we will continue to play.

What is disturbing is the increased need for our lending support throughout the recession, and even now as we navigate the road to recovery. Banks retrench further behind government guarantees. Rates are at record low levels. Despite the Bank of Canada's efforts to make money available for business, lenders do not lend, business does not expand, jobs are not created, and attitudes remain negative. We are in gridlock.

The third problem is infrastructure and the lack thereof. I speak here specifically of the need to upgrade the communications systems in west Parry Sound to accommodate the growing demand for access to the Internet and the technology associated with it. Our Bell lines and switching systems are among the most antiquated in the country and in serious need of upgrading if we are to be able to attract new investment to the west Parry Sound area.

Our lack of natural gas services has also been a barrier to many who would consider relocating a business to our community. The natural terrain, the distance from the main feeder lines along the Highway 11 corridor, and the costs associated with overcoming these problems have made provision of the service prohibitive.

I'm pleased to say we're making some progress on both fronts. Bell Canada has undertaken to upgrade some of our systems in the second or third quarter of 1997. Mr. Mitchell has arranged for the Bell senior vice-president of marketing to meet with our area mayors and reeves to discuss the local calling issue, in the hope that we will be able to eliminate long distance charges within the west Parry Sound business area.

On the natural gas front, Centra Gas of North Bay is once again examining the feasibility of building a line across the 518 corridor. It's a smaller-scale project than before, but at least getting the service to our side of the district is a start.

Problem four is funding partnerships. On a number of occasions both our federal and our provincial legislators have spoken directly of the need to fund projects such as those I've mentioned above cooperatively. Unfortunately this message appears not to be getting through to the bureaucracy charged with administering these programs. The private sector must, in many cases in cooperation with their competitors, agree to work together, joint marketing schemes being a perfect example of combining resources to do a better job with less money.

This mentality must be instilled in the government program delivery agents. Share the expense, share the credit, so we can all share in the benefits. Our organization is trying to lead by example, as a federally sponsored team attracting municipal and provincial dollars and private sector organizations such as the chamber of commerce, bringing all the players together to get on with the jobs that have been studied and strategized for years, be they marketing plans, natural gas, or Bell Canada services.

Many of us have made a conscious decision to leave the city and live in rural Canada, recognizing that in doing so we forgo some of the amenities that urban life has in exchange for the natural amenities we treasure. Care must be exercised to ensure that as we encourage growth and development we do not destroy the very natural environment that brought us here in the first place. It's a very delicate balance we try to maintain.

I thank you for the opportunity to discuss these issues with you. I'd like to hand it over toMr. Tim West, chairman of the West Parry Sound Area Community Business Development Centre, who works for the Ontario Federation of Snowmobile Clubs.

Mr. Tim West (Chairman, Parry Sound Area Community Business Development Centre Inc.): I'll take full credit for the snow you have been coming across out there. Not too many people would do that, but I like the stuff.

First of all, thank you for the opportunity. I've given you a video - it's a bit different - Partners on Snow. It's before you. We're not going to show it today. There's also some general information. Part of the snow problem is that I didn't get some of the copies of my presentation made. They are in Mr. Mitchell's office and we'll get them out to you. But we'll proceed.

Thank you for the opportunity to speak to you today. As mentioned, I'm the manager of external relations for the Ontario Federation of Snowmobile Clubs. In the next five minutes I'd like to enlighten everyone on the tremendous acceptance snowmobiling is experiencing. I'll give you some of the numbers from the season last year just in Ontario, and I'll give you some numbers for across Canada.

We maintain 46,000 kilometres of trails in Ontario. That's twice the length of the provincial highways in Ontario. Last year we sold 190,000 family memberships in Ontario alone. We sold 106,000 permits that go on the machine at a minimum price last year of $80, which gives us an operating budget of about $8.5 million directly attributable to the user-fee system.

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An additional $12 million was spent by volunteers and by the clubs with funds they generated on their own. Last year we had an overall direct economic impact of about $652 million in Ontario alone. That's just the Ontario snowmobilers, not taking into consideration the visitors we now have coming from all over the world to enjoy snowmobiling.

We also had 41 deaths last year as a result of snowmobiling. Through our Ontario Snowmobile Safety Committee we're working in partnership with a number of agencies, and we're happy to announce that the Parry Sound area will be the recipient of a pilot project for what we're calling ``access to accidents'' on the trails. We'll be working with our police, with the volunteer fire department and with the Ontario Ministry of Health to make sure that if someone is hurt, we can get them out on the trails.

From the perspective of the Canadian Council of Snowmobile Organizations, we have 112,255 kilometres of trails across Canada. Last year we sold 245,200 permits, which translates into snowmobile-related dollars spent last year by Canadian snowmobilers of a little over $1.4 billion.

Snowmobiling has evolved from a fun recreational activity to a big business. We have that white gold out there called snow, fairly consistently, especially in the northern parts of Canada and the central and northern parts of Ontario. We think the snow is going to last for a little while, hopefully. If you have any control over that in Ottawa, we'd certainly appreciate it if you could help. We like it. But I'm sure you're aware of all the negative criticism I face on a day-by-day basis with the snow coming.

I will mention some of the good-news stories. From the federal government's perspective, this is how you could assist snowmobiling via your programs so far. FedNor and its equivalents in the Maritimes, Quebec and the prairies have helped out tremendously. With access to the section 25 program, in some areas we captured close to 100% of the eligible funds. We were able to utilize the program to meet the benefits of all parties involved, especially considering that we created winter employment. We need people out there in the winter to do the maintenance, groom the trails, etc. Previously the Community Futures program also assisted with trail development as well as groomer purchases.

How can the federal government assist in the future? As an organization, we need secure land and we're running into a problem with securing land. There are a number of people we run into, private land owners.... As well, 80% of the land is controlled by the Ontario Ministry of Natural Resources.

One big issue right now is the securing of abandoned rail lines. They're a tremendous asset for us because they go through communities and are well-established trails. We're attempting now to work with both the federal and provincial governments to try to secure these abandoned rail lines for the public domain. We're also entering into private partnerships with Bell Canada, Ontario Hydro and other associations so that we can share these corridors.

Another opportunity is reallocating the federal tax dollars generated by snowmobiling and reinvesting these dollars in the winter tourism industry. Provide seed money to local snowmobile associations to engage paid administrators. It's a business. It has moved itself away from being a volunteer network. We need to be able to generate some dollars to assist these areas as they develop associations and have paid administrators. There are things like groomer training possibilities, providing education programs for heavy equipment operators to maybe work in the winter operating the groomers. There are things like dollars for research and doing significant studies.

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How important is snowmobiling to rural communities? The importance can be measured only by witnessing the impact first-hand. My telling you today that it has a profound impact could be questioned quite easily. Here in Muskoka - Parry Sound, a good snow season puts tourism establishments that capitalize on snowmobilers in a good economic position.

I encourage you to listen to the ten-minute video when you have some time. It talks about the partners we've been able to generate through the private sector. To the manufacturers and to all levels of government, it's a winning situation right now and we just need to take it a bit further.

In conclusion I'd like to suggest that the federal government has been, and I hope will be, a partner in snowmobiling development across Canada. Ontario and Quebec are world leaders in this industry. Snowmobile manufacturers, the after-market industry, our winter tourism business sector, and many more partners need the assurance that snowmobiling is solid and strong as we march into the new millennium.

I thank you for this opportunity, and a special note of thanks to Mr. Mitchell for his interest in this emerging winter industry.

The Chairman: Thank you. We'll begin questioning with Mr. Asselin.

[Translation]

Mr. Asselin (Charlevoix): As the Chairman explained at the beginning of today's meeting, the Standing Committee on Natural Resources is concerned about the issue of rural development. This week, the committee travelled to Western Canada, and next week, it will be heading East.

Our objective is to collect suggestions from witnesses as to how employment conditions and resource development could be improved to promote rural development. You mentioned a number of problems and said that you were looking for a spark to get economic growth going in your region. The reason we are here today is that the government and the committee are also looking for a spark to get economic growth going. Otherwise, we would not be here.

Your presentation was excellent, but I would like you to tell the committee about the priorities on which the federal government should focus so that the committee can mention them in its report. If possible, tell us what your three main priorities are.

[English]

Mr. Spinney: Prioritizing would probably be sliding down to page 2, number 2, under ``Access to Capital,'' generating a confidence from our own banking industry that can either lead or destroy confidence in a community. I know Mr. Mitchell's background is in small branch banking, as is my own. There's really no other stimulation like the rapport with a local branch banker and the trust that can be developed within a community when your banker is on your side.

I don't honestly know what pressure can be brought to bear on the five major banks in this country, whether it's opening the banking institutions to further competition from outside the area, whether they're banks from the United States, Europe or Japan. Opening up that competition level might stimulate our own chartered banks to be a little more enterprising.

I'll go back a bit. I think if you examine the losses the major banks have incurred in the past four to five years throughout this recession, it would be very interesting to find out where those losses occurred. Did they occur in urban Canada or in rural Canada? I think you will find that a great proportion can be attributed to the major urban centres, large urban development projects that went down the drain, as opposed to the small businessman in northern Ontario, northern Quebec or northern Saskatchewan. I think therein is the problem.

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Confidence has been lost in the urban centres and the policies have been dictated to suit those problems, but the policy is adversely impacting on rural Canada, where - I'm not saying they're any better businessmen - simple is better. I think in a lot of cases your simple northern Ontario businessman has done fairly well throughout the last five years, given the lack of confidence being expressed by their lending institutions.

Infrastructure would probably be second on the list. Andy knows very well the problems we're having in west Parry Sound concerning the telephone-telecommunications infrastructure we have, which we're taking steps to improve upon now. Competition may well be one of the stimuli to Bell Canada to make those moves. It's feeling the competitive crunch, and I go back to the banking argument. Maybe the competitive crunch being brought to the major banking institutions will stimulate more help and more cooperation with rural Canada.

Natural gas, again, is a very expensive undertaking, as I said. It's not just putting a backhoe in the ground and dragging it through sand and dirt. You have a lot of rock to blast in the northern part of our country. That's part of the beauty of it in one sense, but it's also a large cost barrier to bringing services to an area.

We're a small community, but I think we can make it grow. Bringing those infrastructure amenities to the area will help it grow.

Mr. West: From the snowmobiling perspective, we'd like to be able to capitalize on the assets we have in Canada.

Mr. Mitchell and I did a presentation a few years ago to Tourism Canada, and part of our argument was that its representatives were going to European countries and Japan to encourage people to come and go dog sledding - it's really a romantic notion - but I haven't seen too many people come from Japan and Germany to go dog sledding.

We seem to be nice in Canada and want to create this really romantic idea of what we do in Canada. I don't see native people out there dressed in their native costumes. They're wearing business suits now.

I suggested to Tourism Canada that we have a world class industry, so why not start promoting snowmobiling. Its representatives started listening. But we had to bang their heads pretty hard to be able to say that.

Capitalize on the assets. We have snow. Germany, Russia, and all of those places don't have the ability to go snowmobiling. In terms of the population there, it's increasing all over the world, so capitalize on the assets and let's work together to develop this winter tourism industry.

[Translation]

Mr. Asselin: Your idea about snowmobiling is interesting, and as you said, the sport is growing all the time.

I come from the riding of Charlevoix, on the North Shore of the St. Lawrence, which is a part of Quebec where snowmobiling is very popular. I would like to know if you get any financial support from tourism associations and the provincial government, or whether the clubs are self-financing.

[English]

Mr. West: When we originally started, the basis of the organization was our user-fee system. A number of years ago some people sat down and decided they were going to go to a user-fee system, and we thank them for their insight.

We were able to use those dollars as investment dollars. Four years ago the Province of Ontario invested $14 million in snowmobiling. We had to match that with $8 million from our own funds to be able to develop snowmobiling through a program called SNO-TRAC, but it was strictly an investment opportunity. We were told that. It was looking for a return.

It introduced the licence fee of $15. Magically it was calculated over five years. Ontario was getting $14 million back, but it was an investment. What we've been able to do is partner with that. Will we ever let our user-fee system go? Absolutely not, because as soon as we lose that user-fee system we will be at the whim of a partner in terms of a corporate partner - all levels of government. It would just be foolish.

It would be like telling someone ``you don't have to pay any more'' and then in three years saying, ``Oh we lost our funding and now you'll have to pay, because it ain't going to work''.

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We've been able to partner with it, working with all levels of government and making this a reality. Hopefully we will be able to become self-sustaining through our user-fee system, because it's our belief that people should pay for their activity, and they're willing to pay. But consumers are saying they can only pay so much right now and we have to subsidize it.

[Translation]

Mr. Asselin: Part of the fees paid by members go to the club for maintenance work and so on, but part of them go to the federation. How is the money that goes to the federation spent?

[English]

Mr. West: In Ontario, about $60 stays with the club and $20 goes to the federation to purchase the third-person liability insurance. We have to purchase that on behalf of our clubs. It costs us about $300,000 a year. It looks after the safety programs and our environmental program and provides the dollars to operate our office in Barrie, which is central to all of Ontario.

The Chairman: Thank you.

Mr. Wood.

Mr. Wood (Nipissing): Thank you, Mr. Chairman. I just want to talk to Bill for a second about the banks.

I guess if you're a small businessman and you are successful, the banks will really make sure you continue to be successful because they won't have any problems lending you money. The banks are happy because it looks good and they're supporting a small business. But I think you were saying they have to help support some of the emerging businesses that want to get on stream. How can they do that?

I'd just like to hear your views about whether bankers need to place greater emphasis on cashflow as opposed to physical security when considering lending opportunities. How do you feel about that?

Mr. Spinney: During my twelve years in a major chartered bank, I think policy concerning lending criteria for a branch manager probably changed at least three to four times. It all has to do with corporate head office policy and who's running the boat at that particular time.

Therein is the problem for the local branch banker and for you, as a local businessman running a small business in Parry Sound, Huntsville, Bracebridge, or Gravenhurst. You don't have consistency from your banking institution any more. The local fellow does not have the authority to make the decision.

In deference, I don't believe it's just the small emerging business that needs the help; it's the well-established businesses. Criteria have changed. They no longer call themselves equity lenders; they call themselves cashflow lenders.

Businesses in northern Ontario in tourism-related areas can be quite seasonal. Until Tim's impact and snowmobiling came in, lending in west Parry Sound beyond the first of October was very hazardous. You just ran debt until June and July and then it came back down again. Now you're seeing that flat line in January, February and March where the snowmobiling impact is being felt.

As I said earlier, I don't know how we can actually stimulate corporate Bay Street to make those decisions to benefit small Ontario.

Mr. Wood: What would happen if the government tried to persuade the banks to reinvest the savings generated in rural Canada back into the region?

Mr. Spinney: I worked for a small trust company for a very short period of time and that was one of the promises it actually made, and it was one of the reasons I went to work for it.

Mr. Wood: Did it ever do it?

Mr. Spinney: No, it lost its shirt in Metro Toronto and Ottawa, if you can believe it. I had to kick, scream and holler to get it to lend the money generated in savings accounts and GICs in my community back to that community. Its mentality was that you had to have all those investment dollars before you could lend it back out.

Banking and trust relations are generated in the reverse. If you lend a businessman money today, you will have that trust and confidence when he is successful. You will get his deposit dollars back down the road.

Mr. Wood: Do you think that policy would have worked?

Mr. Spinney: Yes, I do.

Mr. Wood: Just one quick question Mr. Chairman.

You've been in the business for quite awhile. One of the difficulties for most communities your organization serves, especially in the wintertime, is to develop some long-term tourism opportunities. I'm sure you go in to talk to tourism operators every day.

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Mr. West: Our biggest problem in going to a tourism operator, a lot of the time, is just for them to convert their facilities over for the winter. That's a big cost to them.

That's why, in terms of a lending strategy, we've been suggesting to the CBDC that this may be an area with which we can help out. We can try to look at frost-free water lines so they don't have to put those under the ground; they can stay above the ground. We can utilize those types of things.

We're providing a linear trail as an opportunity, but a lot of places are saying it's not worth their while. They will continue to close down and go to Florida.

That's okay, because we've been able to generate a whole bunch of new businesses out there to complement our trail system. The unique thing about it is that it's an opportunity for the business community, because our organization is not going to go out to build a hotel, gas bar, or those types of things.

That's why we want to go from what we call the trans-Ontario provincial trail system. It makes a link from community to community to community. We need gas. We need accommodation. The only thing we usually carry is a toothbrush and a wallet when we go riding. So we're spending money the whole time we're gone.

The Chairman: Thank you.

Mrs. Cowling.

Mrs. Cowling (Dauphin - Swan River): I would like to address my question to Mr. West, because I come from a riding that is rural. It's a small community of about 900 people. We have rail-line abandonment and people looking at corridors for snowmobiling.

Because I do come from a very small community that is very peaceful and very remote, I'm wondering if you looked at other alternatives for that corridor during the summer. I'm thinking of diversification. What do you do with the trails in the summer? I think a lot of these trails could be self-sustaining if we could use them all year long.

Mr. West: There would have to be an attitude adjustment out there for Canadians. When they go out from the greater Toronto area, they think there's all this land out there owned by either the province or the federal government. They think they can go out and go anywhere. They think they can use it, and no one should be charging for it.

When it comes to our trail system, we have 46,000 kilometres of trails. We secure the permission of the landowners. It usually requires you to have liability insurance. You have to ensure there's a safe environment. If you're going across a bridge, there are some costs incurred with that.

I sit on the Ontario Trails Council. I'm also a member of the proposed Trans Canada Trail, which is going across the country. I can't convince a person on horseback to invest $50 to put toward the trail system. They would rather go to Vermont, where they have free trails. I'm not talking about the investment in the gas. It's just an attitude problem out there.

If they put some money toward the trail, we'll have a big opportunity. They've done it in the United States. They convinced people that if you want to play, you have to pay, and we can do that. There's a big opportunity, but we have to get over some hurdles.

From the provincial perspective and the Canadian level, we've said publicly that we will teach people how we operate our trail systems, and we'll work with them, but they have to get past that attitude. It's going to cost them some dollars. I don't think the federal or provincial governments are saying they are going to provide that opportunity for them any more, so they're going to have to pay for it.

Mrs. Cowling: Thank you.

The Chairman: Mr. Serré.

Mr. Serré (Timiskaming - French River): Thank you, Mr. Chairman. I'm very pleased to be in your nice riding of Parry Sound - Muskoka.

I'm pleased to have your brief, Tim. We've met before. I have a copy of this in my office. By the way, congratulations; it's well done.

I've met on many occasions with your friend Don Lumley and Marc Lacroix and all those guys. So I'm quite familiar with the trail system, and I think you've done a terrific job at the OFSC.

I have about five questions, Mr. Chairman. I'll try to wrap it up in one.

One, I agree with what Marlene was saying. I think we should strive to do something about getting the year-round use of those trail systems, including four-wheelers and what not. I think that would warrant the development of infrastructure, as opposed to if they were used two or three months of the year.

My question would be addressed to Bill. We've talked a lot about investment capital. We've heard that for the last three years. I know your MP has done a lot of work toward changing attitudes at the banks in Canada to lend to small business.

Quite frankly, we haven't been too successful. I think they raised their share 1% in the the last few years. Frankly, I'm quite upset about the big banks. I think our major problem is access to capital.

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What would be your suggestion? What can we do as a government? Should we force them to set aside a percentage of their portfolio for small businesses across Canada? Should we open up to foreign banks? What can we do as a government to solve that problem?

Mr. Spinney: My own personal opinion is that competition is probably the best seed we can sow in that regard. We've tried ombudsmen. We've tried the Business Development Bank of Canada. We've tried partnering with FedNor, the Royal Bank and the Bank of Nova Scotia. Those programs are not getting down to the local branch banker.

If you go to any of the banks, possibly not in Andy's riding, in any riding in Ontario, you may not find a branch banker who knows what the hell is going on with some of these programs that are partnering with the Business Development Bank and FedNor. Those programs aren't getting to the local guy.

Competition certainly will get their attention, and I think that's probably the most effective way to get things moving again. Unfortunately, competition from large U.S. banks, foreign banks or foreign capital institutions is not going to filter down to small Ontario in the first wave. They're not going to be servicing branches in Parry Sound and Gravenhurst, but they will be servicing them in Toronto, and that may be the key to a changing of attitudes as much as anything else.

Mr. Serré: Do you think the government should go into competition against the bank?

Mr. Spinney: The government itself? No, I don't think so. But it can certainly amend the statute to allow that kind of competition. Maybe the mere threat of amended legislation might be enough to change a few minds.

The Chairman: Thank you very much, Mr. Serré.

Thank you very much, Bill and Tim. I can say from personal knowledge that the two of you and the leadership you're demonstrating in west Parry Sound, both on the snowmobiling side and on your business development side, speak well for both of you and augurs well for the future of that area. So thank you very much for providing your testimony today.

I'd like to call our next witness to come forward. Mr. Fedeli is from the Almaguin 2000 Development Agency.

Mr. A. R. Fedeli (Economic Development Officer, Almaguin 2000 Development Agency): Mr. Chairman, panel members, first of all, I would like to thank you for this opportunity to address you on this subject.

I speak here today as the economic development officer for the Almaguin 2000 Development Agency, which is a municipal economic development agency funded jointly by the provincial government and member municipalities.

These member municipalities include: the villages of Sundridge, Powassan and South River; the townships of Machar and Strong and the Loring and the Restoule areas.

We've tried to address many of your questions, which you sent us, in the first eight pages of what we call our little red book here. The back four pages are on the verbal presentation. You all have a copy. Thank you very much for that.

The Almaguin area does not have a large, unique natural-resource feature, such as oil, gas fields or large mineral deposits around which the economy could develop. The Almaguin area has been blessed, though, with beautiful lakes and rivers, clean and clear water, an abundance of agricultural farms, dairy and beef producers, tall forests, fish, wildlife and maple syrup producers. These are the natural resources that you're so concerned about, as are we all.

Another prime asset we have is the fact that Toronto, which is one of our major cities, is only three hours away from us. There will soon be a four-lane road from Toronto to Powassan, Callander and the South River area.

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I must say that almost all the growth in the job sector has been nullified over the past seven or eight years by a corresponding, if not greater, loss of businesses and jobs.

I'm just going to give you a little example from a study done in 1988 showing this in just one of our areas.

In the South River-Machar area, 83% of the businesses were small. They employed between one and four full-time staff. Family members are included in that total.

Here's what happened over these years. The service sector has also been seriously hit over these years with the loss of a gift shop, a photo shop, two hair salons, a florist shop and a hardware store. For a small community with only 1,100 people, that's pretty disastrous.

Within the last few months, another vital business was lost in the Sundridge area when the feed mill was forced to close in Sundridge. This mill served a great number of farms in Almaguin region by processing their grain. Its closure appears to be the direct result of a mishap during sewer and drainage renovations near the mill. A shift in the water table caused the building to tilt and be declared a danger. It was condemned, so they had to close it.

The inability of the owners to obtain financial relief to settle the issue resulted in its closure, a loss of jobs and an increased cost to farmers who used the facility. Consequently, local businesses have also suffered.

I talked of the increased cost to the farmers. We're right in the farm belt here. When you look at the statistics, it shows you the great number of farms we have not only in Almaguin region, which runs from McKellar to Sundridge, but the whole Almaguin and Parry Sound area. They counted very heavily on this to mill their wheat and other grain products.

The word that's out is that a lot of these people aren't going to even grow these grains any more because of the added cost of going up into New Liskeard or Barrie and into the Toronto area. You're putting a heavy burden on these farmers. I think we should have acted at lot sooner somehow.

I urge the federal government to take a look at anything it can possibly do to rectify this catastrophe, which is what I call it. There's a loss of some 30 jobs. Some of them were directly lost with the loss of the mill. Also, what's happening with all these farmers who are left there now? They have to put in that added cost to go to these other mills farther away from Sundridge.

The information highway is still under construction. There's a critical need to improve the access to computer technology in rural areas, where a telephone line still cannot handle a fax machine, never mind the Internet. You can't even have a private line in most of these places.

Bell Canada's plan to charge more for business lines in rural Ontario fails to take into account the fact that the local calling area is very small and that rural businesses are already paying long distance charges on almost every business call.

Mr. Mitchell, I know I just received a fax from your office yesterday. We're well aware of the work you're doing in this concern, but I had my little speech made out, so I am going to continue on with it. We appreciate your efforts, believe me.

While no one has access to larger urban centres like North Bay or Huntsville in their local calling district, it was agreed that we should all, at the very least, be able to reach each other without long distance charges.

The split districts and telephone directories are a divisive problem in the Amalguin highlands. It splinters the communities we serve. It places a barrier to partnerships and cooperatives, which this region has been urged to adopt. There's an old quote: ``If you keep doing things the way you have always done, you'll always get what you already have''. Clearly, what we have is not acceptable.

The throne speech stated that the government is committed to the economic renewal of rural Canada. What does the word ``renewal'' really mean? Of course it means to revive and to reawaken. This is good.

A few days ago, there was a report from the United States that identified the state with the lowest unemployment record. It turned out to be Nebraska, which has an unemployment rate of 2.6%. That's almost unheard of.

A few years ago, this corn belt state had one of the highest rates of unemployment, in excess of 11%. This turnaround was not achieved by returning to the ways of the past, but by an aggressive move into the 21st century with telemarketing, call centres, computer hardware and software development. The report identified that more than 50,000 additional jobs will be created there in the next five years as well.

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On a more localized basis, in speaking with a number of area farmers at a regional meeting recently, some of their concerns were that the price they were receiving for their beef and agricultural produce had gone down, but the cost of operating their farms had increased again. There's the cost of insurance, which is a major factor. Operating expenses such as gas, machinery and supplies, as well as UI and CPP premiums for those who have part-time and full-time employees, have increased or are proposed to increase again.

Many have found it necessary to work at other jobs away from their farms in order to sustain their farms. Many farmers over the past years have just given up. They have abandoned farming. Consequently, the region has many vacant tracts of land.

The tourist operators in the Loring-Restoule area have some particularly deep concerns regarding the high price of gasoline. This area is a very tourist-oriented part of our region. The proposed licensing of boat motors greater than 10 horsepower is a very heavy concern for them. They feel that a lot of the American tourists won't come over. Licensing, gun restrictions and the discontinuance of maintenance on federal docks are other concerns.

It is felt strongly that the above concerns will all create severe economic conditions for the many tourist operators who depend heavily on the American trade to help sustain their business. That's from a business group in the Loring-Restoule area.

Here is one possible solution. Along with all the other jobs that can be created by new technology throughout our area, the revitalization of our vacant farmland can lead to the creation of many new jobs and toward many new people moving into our region.

Before I get on with that, I'll just mention that we should move the yardsticks on those signs. They say that there are 700, 900, 1,000 and 1,100 people in all our different little communities along there. Until they go from 700 to 1,000, 900 to 1,500 and 1,500 to 2,000, we're really going to continue struggling. We need an influx of new people to generate the new businesses that will help us sustain the region and make it a lot healthier.

There is a great shortage of food in so many parts of the world. We can help fill this need. We have the land, as I mentioned earlier. We have many vacant tracts of used farmland. We're situated on the main highway.

There's an airport close by in North Bay with a major runway. Its value was proven not too long ago when those huge Russian planes touched down in North Bay on that 10,000-foot runway. They took out 200 tonnes of manufactured goods on a number of different occasions. It shows what we can do if we revitalize this farmland.

We're always helping third world nations. We can do something to help our farmers and our regional rural areas while helping those nations at the same time by revitalizing our farmland here. With this produce and with the airport so close at hand, we can ship this product all over the world. Many new jobs would most certainly come with the revitalization of our vacant farmland. The influx of new people this would bring to our area is very badly needed to sustain the businesses that are here now and to attract new businesses and services.

The Almaguin 2000 region is 1,900 square kilometres in size, with approximately 16,000 people and just over 860 businesses and services making up 12 different municipalities. It's a very large and fragmented area.

Our very first ever Almaguin 2000 business and information directory will soon be delivered to every household in the Almaguin 2000 region. I'm very pleased to say that the directory is fully paid for by our business community by way of advertising in the directory. This directory is being published to assist the businesses and services that are here now, and will also be used as our first marketing tool to attract new development to our region. For those of you who don't know, our office is relatively new; it's just over a year old.

I urge the federal government to partner with the provincial and municipal governments in a manner similar to that of the infrastructure programs in order to implement the major rural development program. The Government of Canada, working hand in hand with its partners toward specific growth targets for rural areas can put in place financial incentives that will encourage businesses to move away from the high-density and high-tax areas such as Toronto, Montreal and Vancouver, and instead locate where they are very badly needed, which is in rural areas such as ours.

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In other words, we need affirmative action on the part of governments. All levels of government must focus energy and programs on stimulating rural growth. I'm not just putting the emphasis on the federal government. All forms of government must work together to increase the availability of educational programs and training.

Our young people will then, and only then, be convinced not to run off to the largest cities, which exacerbate their existing problems, but to stay in the rural areas where they can clearly see that the tide has changed and their future does not depend solely on working in primary industries. They must see the future now. By working together, we can help that happen.

Another question raised is, should rural Canadians be in a position to access continuing education as easily as urban Canadians? That question is actually very offensive. In my opinion, it reflects the thinking in the minds of some people about rural Canadians. Many urban Canadians may be shocked at the high level of education, knowledge and experience that already exists in rural communities. Unfortunately, that level of communication and continuing education must often be obtained by our younger people by moving to urban areas. It is vital for governments to not question this necessity, but rather to insist that rural Canadians must have access to continuing education as easily as do urban Canadians.

Another statement from the work plan is that economic activities in rural areas benefit not only those living there, but they are also of major importance for the sustainability of thousands of jobs in urban Canada. This being the case, the importance of reinvestment in rural Canada should then be a must. A larger portion of the wealth generated must be earmarked to be returned to rural areas in the form of incentives to stimulate growth, both from within the communities and also from the outside, so as to create the critical mass of people that is so essential. Those signs must start changing from 700 to 1,000, 900 to 1,500 and 1,500 to 2,000 before we can see some really significant changes there.

Many of our rural people are individuals who work with virtually all of the available natural resources at their disposal to make a living. They produce maple syrup. They sell firewood and use it for their own use. They mill small quantities of lumber. They farm their land and produce crops for local markets and themselves. They raise their own farm animals. They fish and hunt.

At the end of the day, they have enough to sustain themselves and occasionally create a few part-time jobs. They succeed because of their work ethic, their personal dedication and their love of the land they purchased or inherited many years ago. But this cannot be our vision of the future.

Thank you, Mr. Chairman. I appreciate the opportunity.

The Chairman: Thank you. I'll call upon Mr. Asselin for questions.

[Translation]

Mr. Asselin: I would like to start by congratulating the witness. He is very familiar with the situation, which he described with a great deal of enthusiasm.

He spoke to us about his little red book. Of course, the little red book gives us some idea of what should be in the next government red book in order to solve this problem.

The government's Red Book - to which you referred - does not contain much. You referred to the issue of firearms and to the establishment of marine fees. We have seen that the federal government is privatizing increasingly its infrastructures such as airports, quays, railways, and so on.

There is one thing you did not mention in your little red book, but it was in the government's bid Red Book. I am talking about the elimination of the GST.

I would like to hear what you think about that. You know that when the Conservatives implemented the GST, the previous tax was bringing in $12 billion a year to the federal government. The GST is bringing in only $7 billion a year. So the federal government is losing $5 billion a year with the GST.

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I am sure you would agree that the GST has helped the underground economy. In addition, tourists in Canada are not very keen at all on our two taxes, one of which is the GST. Do you think the federal government in its next Red Book, should keep its promise and abolish the GST?

[English]

The Chairman: As you see, we are an all-party committee.

Mr. Fedeli: Mr. Asselin, thank you very much for the question on the GST. I believe everyone should make every effort to keep any promises they make, whether on the GST or any other matter.

My feeling on the GST is the money is most drastically needed, and it must be obtained in some way. As a former businessman with many years in manufacturing small wood products, I recall the days when the GST was hidden and people had very few concerns about paying it, because they couldn't see it. My thoughts to the federal government would be: let's go back to that system. I think you will regain people's confidence if you put it back in the previous formula.

I know you need the money, and I believe whoever is there is going to continue to collect it. But I would say let's get the confidence back by reverting to the old system of having it paid on site as you go along and not as, Mr. Asselin said.... When the tourists come over here they look at it and they say ``Oh my gosh, another 7%''. The old way, they didn't know it was there, and they were paying it, and they were quite happy about it.

[Translation]

Mr. Asselin: Thank you.

[English]

The Chairman: Thank you, Mr. Fedeli.

Mr. Wood.

Mr. Wood: Mr. Fedeli, I know Mr. Asselin has asked this, and I think we all have asked it in the last week. What can the federal government, in your opinion, do best to help stimulate the rural economy? Would it be tax incentives? Would it be infrastructure, or reducing the regulatory burden? If you had a wish list, where would you think we should focus our efforts - in what particular area?

Mr. Fedeli: Mr. Wood, I would like to speak on Almaguin 2000, if I may.

Mr. Wood: Yes.

Mr. Fedeli: Every region, rural or otherwise, has its own unique problems. In our area of course we've looked back to the 1880s when the Algonquin Park area and the Georgian Bay timber stands and the logging area were all virgin timber. They started logging all these areas, and over these 100 years they're still logging it. The timber and lumber that came from these areas... all the roads were built, and the railway came next. It took all this timber into the southern part of Ontario and other parts of Canada, to help build this country.

I think we should get some of this back in the form of some kind of a laboratory or something. There's nothing. You look through our area and there's nothing I can see that says, ``Hey, thank you for all those hundred and some years of taking this timber out of here''. It's one of the few natural resources we had in abundance, and we still have.

There is something that maybe you can look at - some type of study. I have a number of things here, Mr. Wood. That's just one of the things that I feel should be coming back...and maybe helping us out. I'm not talking about handouts, but you have to be realistic. It's money that makes things spin around and adds some type of incentive.

As I said earlier, become a partner. The provincial government is letting the MEDAs go, as they've said, and ours is there for only another three and a half years. Some of them have already disappeared. Let's become partners in three, as with the infrastructure - the federal government, the local government, and the province. Let's get serious about economic development. Let's work together and make it happen.

We need money for studies. We had a maple syrup candy factory in our region. It disappeared four years ago; it moved to Niagara Falls. We have maple syrup producers in our region, not as great as they have in Québec - 70% of all the maple syrup in the world is produced in Québec - but we do produce about 15% of the rest of it, and most of it comes from our little Almaguin region here.

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We need some money to do a feasibility study. Can we get that candy factory going here again? Can we start producing enough of this maple syrup to export? We need some help in that regard.

Mr. Wood: Speaking of money, is access to capital and training of local businessmen or entrepreneurs of sufficient quality, in your mind, to enable diversification to occur?

Mr. Fedeli: Well, as we say in our pages somewhere....

I say ``we'' because Ray St. Onge, our past chairman, and I worked on this brief together, and I want to pass along the credit to Ray as well. I'm not taking all the credit for any of the good things in here. Ray is a big part of it as well. He always was and continues to be a driving force in the Almaguin 2000 region.

In it, we state if you're training us to do the same things we're already doing, it's no good. We have to be able to get the same quality of education and training that other, larger communities get. We have to broaden our outlook. We have to be able to look at having something more.

Do you know what's happened in the corn belt? If you look at those corn fields, they have telecommunicating systems there now, and big businesses. We can have them here; we have all that vacant land. These are the sorts of things I'd like to see some studies done on in our rural communities.

Before you go out and fill anybody's pockets and bank accounts with money to work with, let's do some honest studying. Our forest industry needs some studying, and our maple syrup. I'm talking about our region. Our farm land is a tremendously large community here, all through the Parry Sound - Muskoka region and the Almaguin region. Let's do some studying. Let's put some hard dollars there, do some studies, and try to come up with some solutions.

I don't have all the solutions, and I don't think any one of us does. That's why we're here.

The Chairman: Mr. Serré.

Mr. Serré: Thank you very much.

That's pretty good stuff, Mr. Fedeli. I could spend the whole day studying this document, but I'll restrict myself to one issue that was raised by the previous presenters also, the question of a problem with the telecommunication infrastructure in rural Canada. I experience this same problem in my riding of Timiskaming - French River. There are areas where we don't even have a phone service, period.

We've developed a program called the community access program, which has benefited my riding. In this day and age of a capitalistic society where government intervention is badly viewed, how would you suggest we go about forcing Bell and those companies to provide service to rural Canada?

Mr. Fedeli: For many years, Bell had a monopoly on the telephone systems. In northern Ontario, in your region, Mr. Serré, and where I was in North Bay, we had Northern Telecom in New Liskeard and that area, and they are still there.

Now that all these others - Sprint, AT&T and Unitel - have come in and taken a lot of the long distance dollars away from Bell, or so they keep telling us, they say they can't afford to get into these other regular residential things. I say that's a lot of hogwash. Just look at their bottom line: it keeps growing. They should be, let me use the word ``encouraged'', to start putting some more money in there.

What's going to happen to your area and our area once we get these better telecommunication facilities available to us on a regular basis? Our areas are going to grow. When we grow, so does Bell Telephone. Everywhere there's growth, the first thing you have to do is get a Bell system put in.

I don't know if that's answered your question, but I can continue a little more. Maybe you can steer me in another direction on it.

Mr. Serré: It does partly, but I'm looking for a specific. Do we legislate Bell Canada and those companies, or do we provide them with grants, or do we tax the whole country and use part of that money to reinvest in rural Canada?

Mr. Fedeli: I think it's time we started persuading them.

Mr. Serré: As with the big banks, it doesn't work.

Mr. Fedeli: They need persuasion and maybe a little more pressure put on them to understand.

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I can use as an analogy what has happened to our forests in the Georgian Bay and Algonquin Park areas. They've taken a great part of the timber out and left nothing there. I believe Bell had many rosy years and made huge profits. I think it's time to say thank you, particularly to some of our little rural areas, to help us. I think you have to start twisting their arms, that type of persuasion.

The Chairman: Thank you very much, Mr. Fedeli. Your enthusiasm and drive are a big part of why things will begin to happen in the Almaguin region. My congratulations to you, and thank you very much for providing testimony today.

Mr. Fedeli: Thank you, Mr. Chairman and panel members. I enjoyed it.

The Chairman: I would like to call upon our next witnesses. From the Community Business Development Corporation we have Sylvia Purdon, Don Forsyth and Hugh Fairfield.

Sylvia, will you be leading off?

Ms Sylvia Purdon (Manager, Community Economic Development Program, Community Business Development Corporation): Mr. Chairman, I'll be the presenter.

The Chairman: I'll ask you to keep your comments to 15 minutes and then we'll go around for questions.

Ms Purdon: Thank you very much, Mr. Chairman. With me is the chair of our board of directors, Mr. Hugh Fairfield, and Mr. Don Forsyth, the general manager of the Community Business Development Corporation. We are part of Industry Canada's Community Futures program in rural economic development.

You have before you our submission to the House of Commons standing committee. First of all, we followed your excellent questions, particularly the subtitles from your questions and your work plan. We hope we focused on what you were looking for.

The following is a summary presentation by Muskoka's Community Business Development Corporation to the committee, using the subtitles from the generic questions for local hearings on rural economic development.

Muskoka is a Canadian Shield district with economic roots in tourism, extensive family-style cottage communities, forestry and manufacturing. The economy is largely seasonal, based on summer and more recently winter tourism. The area was heavily timbered at the turn of the century, but still retains a forestry base, now supplemented by manufacturing of forestry products, automotive and small fabricating industries. Employment, however, is largely in the service and tourism sectors.

Industries are located up the Highway 11 corridor adjacent to the centres of population - Huntsville, Bracebridge and Gravenhurst. Six area municipalities comprise the district of Muskoka in a regional system of local government. The year-round population of the district of Muskoka is estimated at 50,000 people, rising to 125,000 in the peak cottage season.

Unemployment is historically higher than the provincial and national averages, and household incomes are significantly lower than the provincial average. Dependence on federal government transfers is high in Muskoka because of the unemployment and general welfare needed to sustain the population through the seasonal employment shifts. For your further examination, I have provided social demographics on household income, some seasonal and year-round household demographics, in the appendices.

In the district of Muskoka the number of people with grades 9 to 13 and without secondary school certificates stands at 42%. In the province of Ontario it's 37%. In the district of Muskoka the number of those with a university degree is 8% of the population. In the province of Ontario it is 13%.

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The labour participation rate as of September 1996 in Midland and Orillia stands at 70%; in Bracebridge HRDC, which includes Muskoka, Haliburton and Peterborough, it is 62.7%; in Canada overall it is 66.6%; and in the province of Ontario it is 67.7%.

The district of Muskoka is in the lowest percentile in all economic indicators - education, labour force participation, and reliance on government transfers. These factors drive our small business investment and loans programs and our community economic development activities at our corporation.

We recommend that the Government of Canada sustain a level of training dollars that will enable the district to continue to re-educate and retrain our population to a level to effectively compete in today's economy. It is further recommended that this training be beyond basic literacy and skill-building because of the high level of skill expected by industry in all areas, including production.

There is a strong motivation to move out of cities to rural and small towns. We have experienced an increase in our retired population, but if the numbers of the Toronto-area people who attended the Algonquin Automotive Career Fair this month are an indicator, there appears to be no barrier to seeking good employment opportunities in a rural, small town area.

Our goal at that economic career fair for a new division in Muskoka was 1,000 people. We had 1,500 to 1,800 people go through the career fair. It was advertised in The Toronto Star and they were lined up around the block.

On natural resource management, included in this presentation is a short list of manufacturing industries in Muskoka by number of employees and a short outline of some positive environmental practices followed by these companies. In discussion with these industries, we have learned that economic advantages are realized through these environmental impact practices.

We recommend that the Government of Canada support, through incentives, environmental restoration practices by manufacturing firms that directly affect the consumption and use of natural resources such as timber, oil, water and more. That is an area I'm just beginning to survey in our local industries. What strikes me about it is that the companies are reporting to me that it is economically better for them to practise good environmental practices.

If I read what you are mandated to do, I think this committee can't look at economic development in relation to natural resources without also looking at the restoration and sustainability of those resources. So I see Muskoka as part of a universal whole in this regard.

My next point is on capturing a greater share of business services for rural Canada. The manufacturers listed here are export-based industries, usually multinational, but some are in private ownership. These industries are state-of-the-art operations utilizing contemporary production, employment and management practices. Our board of directors has toured all of the industries in Muskoka and southeast Parry Sound. However, we are still deficient and have not made substantive gains in information technology, although industry fairs better than the small business sector and the general population in this area.

Our recommendation is that the federal and provincial governments must collaborate more effectively to bring extended and improved communication technology to rural, small town areas such as Muskoka. Even with the announced improvements from Bell Canada, for which we are quite grateful, Muskoka still is a communications backwater as soon as you leave the Highway 11 corridor.

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The effect of this deficiency is to put our seasonal residents at a disadvantage when using their residence as a part-time home office, an important factor in a cottage economy. As well, the small business owner generally is not using the available technology to the potential realized in other areas.

New Brunswick is an excellent example of an area that has successfully raised its competitive edge by raising the level of technology available to business, in particular fibre optic technology.

The next topic is economic diversification. The seasonal nature of the tourism-cottage economy is a critical element in the Muskoka economic mix. It is essential that Muskoka develop a year-round economy, and the greatest opportunity to do this is in the manufacturing sector. Fully 14% of the labour force works in industry, the remainder in tourism and service industries other than education and government.

With a strong industrial base located off the Highway 11 corridor, Muskoka is well positioned to expand that base and enhance year-round employment opportunities of all kinds. To do this, Muskoka needs the federal government to put a priority on technology availability, as discussed above, and to be an active partner with the Community Business Development Corporation's efforts to promote Muskoka as a place to do business.

In addition, the support of the small business sector and improvement in the competitive edge of the small business sector will retain existing jobs and businesses and lead to the development of new entrepreneurial ideas. The SEA program is a good example of this type of entrepreneurial program that deserves continued support from Industry Canada.

Industry Canada and Human Resources Development Canada are rural small town Canada's most effective partners in economic development areas such as Muskoka.

On entrepreneurial support, the federal government is encouraged to take action in the following areas. In the previous submission, somebody said, ``If you had a wish list''. Well, this is a summary of what we would wish.

Number one, allow the Community Business Development Corporation to increase activity in Muskoka's communities to build entrepreneurial skills and attitudes throughout the population. That speaks to training.

Number two, encourage in many ways, and quickly, the improvement of Muskoka's technological capacity.

Three, export opportunities are underutilized by small business and consultant specialist firms in Muskoka. Existing export programs seem difficult to access and less related to the rural small town setting. Custom design some export workshops specifically for the type of business that exists in a district such as Muskoka and increase the export capability of these sectors.

Four, remember the entrepreneur, the backbone of our economy. Develop policies on taxation and employment and incentives that will support small business and reduce the cost of doing business in Canada.

Five, support the investment and loans program of Muskoka's CBDC to allow Muskoka's new and expanding businesses access to capital in combination with the value-added services provided by counselling, mentoring, financial management skill-building and advice.

In conclusion, it is vital that federal departments recognize and take time to learn about rural small town areas such as the district of Muskoka.

Small is sometimes beautiful, but small communities, in our experience, demonstrate vitality and strength in a country as vast and diversified as Canada. However, the Muskoka economy is fragile, and we have tried to indicate in this paper the support we need from our senior level of government.

As Muskoka's CBDC, we appreciate and value the partnership of Industry Canada, and we believe in our capability to work to strengthen the economic base.

The Chairman: Thank you.

Mr. Asselin.

[Translation]

Mr. Asselin: Thank you, and welcome to the committee. I must congratulate you on your very fine statement and for making the committee aware of this matter.

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I'm sure the committee will make careful note of your comments and that some excerpts from your remarks will be included in its report to the government. You are here today to make the committee and the government aware of certain issues.

I think the federal government is much too centralizing; it is trying to control everything. At the dawn of 21st century, the federal government should be decentralizing many more of its activities. It should be decentralizing and giving more powers to the provinces.

Of course, if the federal government decentralizes to the provinces, the money will follow, and the provinces will be able to look after rural development.

The province of Ontario is in the best position to look after your region. I know your region quite well. However, I am not sure that the federal government knows your region as well as the provincial government of Ontario does.

In your presentation, you also spoke of tourism, education and training. In a decentralized system, I think the provinces should look after those areas as well. That would reduce waste considerably and would prevent program duplication and overlap. We are paying twice, because both the federal government and the provincial government are involved in education.

Would you agree that tourism, education and training powers should be decentralized, and given to the provinces?

[English]

Mr. Hugh Fairfield (Chairman, Community Business Development Corporation): I'd like to clarify one point with regard to our program.

The federal investment portfolio we manage is entirely locally driven. The volunteers have a very free hand in how that money is to be handled. So this goes one step further in decentralization than the provincial government. This effectively comes right down to volunteers from within our own region.

However, there are some challenges and perhaps some hazards in our program that I'd like to add to what Sylvia has already presented.

Our program has two thrusts. We're a source of last-resort capital for businesses in the process of being formed or in financial difficulty. We're providing direct loans to those, and those loans are expected to return an interest component, so the fund is self-perpetuating.

I only see one hazard to this loans program. At the present time, the federal government is making financial contributions to our administrative and salary component. As a result, all of the income from our loans stays within our portfolio, and it is continuing to grow.

Where I see some hazard is that under the Ministry of Industry at the present moment, they're contemplating requiring our program to be in transition towards self-sufficiency. In other words, in order to be self-sufficient we would have to apply any of the income from our portfolio toward the administrative and salary expenses that are there.

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Under self-sufficiency, we may not be as aggressive in lending support to the people who need our loans; however, there is perhaps even a greater threat, and it is that the second component of our program has longer-term impact. The thrust of that economic development component of our program is to educate entrepreneurs to strengthen the economic climate in order to attract prospective businesses in the formative stage or in an expansion phase. That component of our program has longer-term impact, but under self-sufficiency the money may not come back quickly enough to enable that component to be self-sufficient.

So what I'm suggesting is that as it has been in existence for the last number of years with, in our case, a $200,000 annual contribution towards the administrative costs and salaries we have in our organization, it's been possible to have both components in our program. I see the longer-term economic development component perhaps being hazardous if we in fact move towards self-sufficiency.

So I'd suggest that under current conditions this locally administered, locally motivated program, which I feel very proud to be part of, may have to make some serious changes if in fact the continuing funding for our administrative expenses is discontinued.

The concept of self-sufficiency needs to be examined, and it has to be recognized that we might be able to continue to supply loans, but the income from those loans would have to be applied to our administrative cost; therefore our program would have to shrink. That concept of self-sufficiency is a concern.

The Chairman: Mrs. Cowling.

Mrs. Cowling: Thank you, Mr. Chairman.

As we've crossed the western provinces and the north in the previous days, we've heard about rural renewal in many areas from the perspective of the human resource side of that and people, and I'm wondering what you would recommend to this committee with respect to enhancing rural areas to in fact encourage young people to come back to the area.

Ms Purdon: Thank you very much for that question. In the past, the only way people can come back who have actually been educated is if there is new opportunity, and that opportunity is either going to occur through the growth of existing industry, which we've just experienced, new industry moving to the area, or - and this is a tremendously important sector right now - new entrepreneurs developing new business, particularly home-based business, making good use of the technology.

We recently had a conference on new ideas in self-employment, and 230 small business people attended. I asked at the start of that conference how many were home based, and 100 people put up their hand. There isn't any question that it's where the new opportunity is occurring in new businesses.

In terms of the existing small business base, a study recently done by one of our keynoters - actually she presented it - indicated that existing small business doesn't really grow; it reaches a certain stage, a number of employees, one or two employees, and it doesn't really grow from that. We've more or less known that, but now it's been proven in a definitive study.

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So it's new business that has to be the thrust. We tried to say that we need support in strengthening the entrepreneurial skills of the existing population, which has been largely dislocated because of cutbacks and the closing of major institutions, and we need the technology to support that.

In answer to Mr. Asselin, this is a federal responsibility. I believe telecommunications is more a federal responsibility than a provincial responsibility.

I'd say that our effort to improve the entrepreneurial climate is the most essential factor, and we are increasing our efforts to encourage new industry to move here. That's how we'll bring other people back for rural renewal and an increase in population.

Mrs. Cowling: I have one more question. As we hear from various witnesses, Mr. Chairman, I keep hearing they need more money or more subsidization. I'm wondering what communities such as this one are doing with respect to investing in their own future, in their own community - people like yourselves. A lot of times we see people in their own communities investing outside their communities. I think that happens in a lot of areas.

How do we encourage that pioneer spirit? In fact this community was probably built on the backs of pioneers. How do we encourage people in this country to start investing in rural Canada? Those people who live in rural Canada quite often take their resources and the financial resource base with them. How can we encourage them to invest in their own communities?

Mr. Fairfield: One of our greatest assets is our educated young people, who are probably working for another company or have been forced not to become entrepreneurs. They can't take the risk with a young family and all the expenses it involves. They don't have assets they can put forward. They may have the entrepreneurial spirit, they may be well enough educated, but they don't consider themselves to be entrepreneurs because of that initial block of not having some assets they can risk behind some of their entrepreneurial ideas.

Our program strives to make access to capital available to them, but even we require them to put up assets that perhaps they're reticent to risk. They may have to put up their home and their personal guarantees and this type of thing. The concept of having somebody guarantee for them in that formative stage a limitation of the risk they would take would probably increase the number of prospective entrepreneurs, and we might flush out some of that adventurous spirit we need to vitalize our area.

I don't think we can expect them to take all the risk, and perhaps we're putting too much risk on our young people who are well educated. We have the investment in them. They may well be able to run a business, but they just can't risk everything they have, so they go and get a job with a company that keeps them employed but doesn't generate new organizations. That's particularly critical in an area such as Muskoka.

The Chairman: Mr. Wood.

Mr. Wood: Thank you, Mr. Chairman.

I want to continue on with what Mr. Fairfield was talking about. I asked this question earlier this morning. Sir, in your view, do we need to place greater emphasis on cashflow as opposed to the physical security when considering people who come before your organization and need a small business loan?

Mr. Fairfield: In the deliberations on our board, one segment of our board looks at the balance sheet and the other segment looks at the cashflow. There's a very definite difference in the impact on the company. If you're looking at the cashflow you see what the business is really generating, but when you look at the balance sheet you see badly capitalized companies that by all banking perspectives are bankrupt. So re-emphasizing cashflow would make a significant difference, and as long as we're in a position where we can take the risk, we can't take more assets because there aren't assets there. In our function as loan managers we are probably emphasizing cashflow to a greater extent than others. I only wish we were doing more of it.

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Mr. Wood: Thanks.

I have one quick question, and I know a Bell Canada representative will be here later.Ms Purdon, you mentioned that one of the things you wanted to see was more technology, that this area is still deficient and we have not made substantive gains in the information technology part of it. How important is that? How lacking is this region in modern communications infrastructure? It's probably crucial for business establishments in support of the high-technology ventures to have this. Can you elaborate on that a little bit?

Ms Purdon: As I indicated, the Highway 11 corridor seems adequate for industry needs right now - they go out and buy more capacity. But I guess what has struck me in doing community economic development work is meeting people from New Brunswick and seeing the effect advanced information technology has had in that province. For example, it allowed Moncton to advertise for people to come to Moncton to work. This is not true of Muskoka. For example, we have just gone through a process of developing a community access program grant for the district of Muskoka, but Georgian Bay cannot link into any network.

We have an Internet site, so you can do business in Muskoka quite extensively, but they can't use it all. Muskoka Lakes township is largely on rotary phones. I think it's extremely deficient once we leave the corridor. I don't think we can talk about being able to compete in the 1990s to the year 2000 without the supporting infrastructure, and I would urge that more of that be done in federal-provincial partnership to ensure that the infrastructure is in place. It's no accident that it's called the highway - we really need it.

So it's very spotty, very slow, and not being used at all by the general population. I mention home-based business because it's a growth area, and they're going to need it if they're going to export. That's why I brought up export. You can't get into joint ventures or export your specialist service into the United States unless you have fast, effective and reliable technology to support that type of business. That's what I'm trying to get at.

Mr. Wood: Is there any timetable for when this would happen in this particular area? Bell Telephone or whoever would supply it...?

Ms Purdon: I think there are definitely improvements, but it is primitive in the area. Our member of Parliament, Andy Mitchell, made a tremendous effort to get that changed, but we've moved from a prehistoric level to an ordinary level. I don't understand why we don't have better access to fibre optic technology. I would like to have a hearing before the CRTC on this. I don't understand why this hasn't moved ahead, and I see it as both a federal and a provincial responsibility.

The Chairman: Thank you very much.

As Mr. Wood pointed out, there is representation from Bell Canada here today. They'll probably be wishing they came first rather than last.

Thank you, Don and Sylvia. Your organization is a very active one in Muskoka. You've had a lot of projects over the last little while, all of which have been very successful. My congratulations to you and keep up the good work. Thank you for being here today.

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Ms Purdon: Thank you for letting us come and thank you for your support.

The Chairman: I'd like to call on our next witness, Randy Clark from Muskoka Tourism.

Welcome, Randy. I hope you're feeling a little better. I'll ask you to make an opening statement of around 10 minutes, and then we'll open it to questions.

Mr. Randy Clark (Marketing Manager, Muskoka Tourism Marketing Agency): Thank you for inviting us here. It's good to see groups come to Muskoka, as tourism is part of my mandate. One thing is that I'd like more help from the federal government in getting control of this seasonal weather that we have up here. If you can help me on this project, I guarantee I can increase tourism about 1,000% here in Muskoka.

I want to point out to this committee that tourism plays a very big part for us here. For the purpose of this presentation, my focus will be on the impact rural economic development has on the tourism industry of the Muskoka region. Tourism is one of the strongest contributors to the District Municipality of Muskoka's economic base. Muskoka's primary resource in terms of its attractiveness to tourism markets lies in its physical landscape, specifically its multitude of lakes and waterways.

It is this significant resource of lakes and waterways that has been responsible for the evolution of Muskoka tourism from the steamboat/grand hotel era to the era of automobile travel, and most recently to air travel to modern destination resorts. This was evident this past month when Muskoka played host to destination travel buyers from around the world at the Ontario Market Place here in Huntsville, which was very successful.

The major physical attractions of Muskoka include: Algonquin Park, the Severn Waterway and the Muskoka Lakes - Lake Muskoka, Rousseau Lake and Lake Joseph to the south, and Lake of Bays, Peninsula Lake, Fairy Lake, Mary Lake and Lake Vernon to the north. Downhill skiing is an important part of our markets - Hidden Valley Highlands and Tally Ho - as is cross-country skiing and, more recently, Ontario's largest and best snowmobile trail system. Also taking advantage of Muskoka's beauty are several man-made attractions such as the RMS Segwun and recently relaunched Wanda III steamships, the Lady of Muskoka tour ship, Santa's Village and Muskoka Pioneer Village.

Artists also play a significant role of preserving and marketing our spectacular landscapes through the mediums of photography and canvas through our many galleries, shows such as Art in the Park featuring Canada's finest wildlife artists, and hosting Canada's oldest and second largest craft show.

All of these segments in Muskoka's economic tourism base generate an estimated 600,000 tourists annually, on top of its standard base of 88,000 cottagers, who generate an estimated 705,000 person trips annually to Muskoka.

The direct economic impact this market has on the district of Muskoka is to generate$195 million annually from the tourist segment alone and another $113 million annually from the cottage industry. With a direct economic input of $308 million and an estimated 9,000 jobs generated directly as a result of the tourism industry, it becomes obvious that the need to ensure that this tourism industry continues to be viable is critical to the economic stability of Muskoka as a whole.

The impacts from tourism are not constant and are affected by many variables, such as the value of the dollar, the economy, competition, weather and marketing/exposure. For every 1% increase or decrease in tourism visitation to Muskoka, the associated impact would be 6,000 tourists annually, $1.59 million in direct expenditures, and 39 person years of employment.

An example of how much Muskoka grows, and in turn depends on the tourism market as its economic base, is best illustrated by the fact that during our traditional tourist season the district of Muskoka experiences a population increase of 184% over the permanent residential base. The challenge facing the industry as we prepare to enter the new millennium is not only to maintain our current levels of visitation but to increase them by capturing a larger segment of the worldwide travel market.

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It is here that we look for assistance from our federal government to help us market Muskoka. This would increase business to the area and help us build a better economic base for the entire Muskoka community.

This can and is being done through several venues, such as trade and industry shows hosted throughout the world by the federal government. In the case of Muskoka Tourism, it is often an expense that is a little beyond our means. This translates into a loss of some potential markets and future growth, as only larger destinations with larger budgets can take advantage of travelling to Europe and Asia and reap the benefits of the revenues generated from them.

Other venues such as web sites have become a great cost-efficient means of marketing Muskoka throughout the world. Linking up with as many cross-related sites and businesses has proven to be a valuable asset for Muskoka Tourism, as well as for local businesses, resorts and attractions. We have literally received thousands of inquiries from around the world for information on what to see and where to stay in the Muskoka region.

At present, our largest target market is within driving distance. This market is comprised of southern Ontario and the upper States. The United States used to account for almost 50% of our market, but now only represents about 15%. This is a market that all levels of business and government must try harder to win back.

I hope this will at least give you a feel for what tourism is and how important it is to economic development in the Muskoka region.

I have tried to answer a few of the questions from your list. What I wanted to try to get across to you is that tourism means an awful lot to us here.

The Chairman: Thank you very much, Randy.

Monsieur Asselin.

[Translation]

Mr. Asselin: You are absolutely right. The tourism industry is the one that should be developed, chiefly in rural areas, to encourage people living in urban centres to head toward the rural areas, where there are sport facilities, and others, that cannot be found in large cities. There is quite a difference between what the government is doing and the real situation, and that must concern you as regards the development of the tourism industry.

The government has stated what it wants to do clearly in the Red book. It contains a host of promises, but the actual situation is quite different. With respect to tourism, the cuts to unemployment insurance will doubtless have a major impact on your labour force, which is seasonal. You will have to provide training all the time, because people will not be able to qualify for UI and will have to try to find more permanent jobs. Jobs in tourism are not steady jobs; people are going to try to find more stable employment.

The federal government is also cutting back substantially on its transfers to the provinces. So the provinces don't have the money to give to tourism associations. In our region, and I'm sure the same is true here in Ontario, tourism, hunting and fishing have been penalized by government decisions, including Bill C-68 on firearms registration. This bill will be quite harmful to the tourism industry, particularly for hunters. We know that hunters use a lot of services and that their presence results in many economic spin-offs, particularly for hotels. I'm sure you know better than I the consequences of this bill.

There was also the introduction of fees for marine services. Under Bill C-46, if you convoy by sea there will be an increase in fees, which will result in higher ticket prices. Once again the consumer will have to foot the bill.

Let me turn now to the privatization of the infrastructures. You mentioned airports. In the past, deficits incurred by airports were absorbed by the federal government. The trend today is toward privatization. The company will have to be profitable, and this will mean higher air and rail transportation costs.

In addition, the GST is a major handicap for tourism. Even Canadians are having trouble getting used to this tax. When Europeans and Americans come to visit Canada, they feel a little frustrated about paying the GST. Do you find, as I do, that there is a difference between the government's wishes and what has actually been done?

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[English]

Mr. Clark: There's a lot of leeway all around. To go back to a couple of your points, yes, we do lose some people who go to the city, and we do find they tend to come back in time. But they have to go where they can get jobs, and unemployment is changing that as a factor.

You mentioned the waterways and the airports. That's a big market for us. We ourselves are actively marketing those and doing the best we can to try to promote them and to get them more active. That is a very important issue for us. We are watching this with concern. We want to make sure we have a strong airport up here.

The reality of the marketplace is that we hear an awful lot about the GST in particular. I have people coming into my welcome centres. We are asked a number of questions: Where can we get the forms to get our money back? Do we get it back? Why is it there? Is there another way of getting around it?

We hear about the taxes quite frequently from the people coming up from the States in particular. Europeans don't seem to bring it up as much. They just seem to accept it, but the Americans definitely take issue with it.

In the industry itself, the world travellers are used to so many different countries all having their own systems that there is a lot of give and take. They come here and see what's here. There's always those little things that will throw them off and they will want to take issue with. Basically, though, they're here to enjoy themselves with their families or their groups, whatever the case may be.

We've had lots of foreign visitors from all levels of government most recently. We've been fortunate enough to be able to build our new welcome centre down the highway. We don't have a lot of those throughout Ontario. We try to service those 600,000 visitors yearly, and the 700,000 cottagers who come up this way.

So the federal and provincial levels, and even the municipal level, have directly had a big impact on us. There are an awful lot of areas where it really is important to make it as easy as possible for travellers to get here. The biggest thing we have to do is to get that market to know we're here. The best thing for us to do right now is probably to promote our economic dollar. Being what it is, it will go so far here.

Have I answered your question?

[Translation]

Mr. Asselin: I want to leave some time for my colleagues.

[English]

The Chairman: Mr. Serré.

[Translation]

Mr. Serré: I will spare you the long political speech that my colleague from the Bloc Québécois gave us.

I have two questions. How can you explain the decrease in the number of American tourists from 50% to 15%? That seems like a huge drop to me. I have trouble understanding that, particularly given the low value of our dollar.

My second question relates to a presentation we heard in northern Manitoba by the Assiniboine Birdtail Bioregional Tourism Association. They have developed a concept that is somewhat different from what we have heard about here, in northern Ontario. Rather than competing with each other, the various regions got together and each community has its own tourism development project. They have a meeting at the end of the day. They have a joint management office which attempts to promote tourism in a much broader context.

One of the problems that I often encounter in northern Ontario is that municipalities there compete with each other rather than working together. I would like to hear what you think about that. Is there a program of this type here? Do you think this would be a positive thing?

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[English]

Mr. Clark: Your first question on the American issue is a good one. We're trying to understand why there's a decrease in Americans. I grew up in the industry in Waubaushene, on Georgian Bay, back in the early 1960s, and I can honestly recall that 100% of our market back then was from Ohio, Wisconsin and Minnesota. That hasn't come back to us for some reason.

With the dollar being what it is, the Americans who do come up love it. We may not be marketing the fact that our dollar really does make that difference, or perhaps targeting our advertising and our marketing efforts at the Americans, or for that matter the Europeans, to show them that their dollar can go a long way here. It has to be more attractive to them, but somehow they just haven't picked up on it.

We have to get that market back. We are doing it through a number of different venues such as going directly to the United States, working with groups, doing press releases. Anybody who comes up, we try to send them back with kits to spread the word. Word of mouth is very big for us; it equals almost anything we can do from a marketing point of view.

So that's a good question. We'd love to see it get back up to 50%, without a doubt. We are addressing it and trying to get it. I don't think it's any one particular thing these days. Maybe over time it's just fallen off, with the dollar going up and down over the years. Even back when we did have that large market years ago, ours was $1.07 to their dollar and they were still coming up. Somewhere during those recession years we lost that market and we have to get it back. The difference in the dollar could really benefit us if we could get that message to them.

You mentioned working together, which is a very important factor. A lot of why Muskoka Tourism was formed, I think, is that Muskoka is a huge area. You have Huntsville to the north, the Port Severn area and all of Georgian Bay - Bracebridge, Gravenhurst - and they have to work together. They all have their own chambers. They all have their own people with their own initiatives and desires. We had to pull everybody together to market the area as a whole because people don't always see one area. When they think of Muskoka, they think of an area...they think of it as a lifestyle.

Regionally we have started to pull together, and part of my mandate right from the day I was brought on last year was to bring these people together and coordinate an effort. In today's marketplace, when you talk to people from Europe or the United States, you can mention a particular town and they're not going to click on that. Mention Muskoka and they click. We have to ``destination market'' our packages.

There is a very good example of another area doing this. I have come from the Midland-Penetang area, where there were a number of attractions all working against each other for a percentage of the small market there. They all finally joined together and pooled their resources, and now instead of buying seven spaces at a sportsman's show or travel show, they buy one big one. They save their money and are able to use better marketing tools. That really worked well for them, and that is what we're trying to do here.

So aside from Muskoka, we are now working with some outside areas like Algonquin Park, which is a little outside us, the casino in the Orillia area, and Midland-Penetang to market this whole area. We can do a better job when we're marketing very broadly. That's a really important factor and I wholly agree with doing that.

Mr. Wood: To piggyback on what Mr. Serré was saying, and you just touched on this a minute ago...is bringing people together. How difficult is it bringing people and communities together to develop a viable, long-term tourism opportunity?

Mr. Clark: Here in Muskoka I've been finding it very easy since I've been on board. There is always the will. Everybody wants to see the area do well. When I have a board meeting, which I have this week, there are people who hop in their cars at 6 a.m. and drive for two hours to be at my board meeting at 9 a.m. because they want to have input and to be a part. They know we're doing something together. Any time I've gone out to the community and asked if we could get together and chat about a particular thing or take a new initiative, it's worked well here in Muskoka. I think there's a good climate.

Maybe giving us more tools or an incentive to help us.... If these people are going to be there always giving of themselves, whether it's the use of resources, grants or whatever the case may be, such things keep encouraging these people that there is a light at the end of the tunnel and that everybody is working together. They are doing the work. If they see no response from different levels of government, they kind of burn out and start pulling back. But when we do have input, when we can make a call and don't run into roadblocks, we think, here's how we can help at our level, seeing as how they're doing this, and we'll join in with them because it makes sense.

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That's the biggest plus I can hope for, to get everybody to work with us. There is a very strong base for that here.

Mr. Wood: I have one more, Mr. Chairman. As you know, this committee is going across the country trying to find out how to get more growth into rural Canada, and we've certainly heard a lot of people like yourself in the tourism business.

If the federal government decided to do something after this report to include some kind of tourist component in our recommendations, in your opinion would economic stability happen? Would economic diversification through tourism development lead to a greater economic stability and certainty for our resources?

Mr. Clark: Absolutely. As I mentioned in some of the figures earlier, tourism is one of every two jobs in Muskoka. It is the employment base, and everybody has either gone through it or worked in it at one point or another and come back to it. If we continue to get that market and are working together, that will really be the key to continue to develop this area.

There was a time when Muskoka was known as Las Vegas North. We certainly get people from California, such as Goldie Hawn, Tom Hanks and Mel Gibson, just to name a few who have started looking at this area again. The reputation was here and it's starting to come back. These people are picking us out of all of North America. That is an important element of the economic base. When those kinds of people come here, others will come with them. It goes right across the board in so many ways.

If that market were to tail off in any way, shape or form, obviously that market of economics and employment would dry right up and you'd be back in the situation of unemployment insurance and welfare.

There really isn't much else in Muskoka. Tourism is it. It would have a big impact if things were to change, but I'm not going to let that happen. We're working on it. We're looking at a whole new element.

I guess I see myself here as more of a reminder to the committee to say that it is a very important part to us.

I understand cutbacks. I understand everything that's going on in today's system, but just recognize that it is a big impact business. It is important to us. If there are ways through the systems we have now of opening up the existing resources for us, that could benefit. Working with us and knowing that it is important is what's going to keep us going. Interaction is going to be so important for us.

Mr. Wood: Thank you.

The Chairman: Thank you, Bob.

Just before letting you go, I want to explore one of the things I've explored across the country in tourism. It has to do with tourism infrastructure. Here in Parry Sound-Muskoka we've been able to put federal dollars into your new tourism centre.

Mr. Clark: That's right. Thank you.

The Chairman: We put a tourism centre up in Burk's Falls. We put about $0.5 million into snowmobile trails here. We put a considerable amount of money into resurfacing our airport. A number of the organizations in this area that put on festivals, etc., received a fair amount of federal support for all those things. Do you think that's an appropriate role and that we should continue as the federal government to be supporting the tourism infrastructure?

Mr. Clark: There is no doubt that having a centre down there as opposed to a little side street in town has had a big impact. Being visible is the key thing to us. Being on that Highway 11 corridor, which keeps getting mentioned here, and off Highway 59 for that matter, has made all the difference in the world to Muskoka tourism since I've been on board. These are very strong areas that I would continue to support and hope that you continue to support. It's vital to us.

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It is a very competitive market out there. I think when we weren't getting active support from different levels, Muskoka did fall behind, where other areas started to pick up. There is only so much out there. We were competing with other markets across the country, whereas now Muskoka is getting back on its feet, thanks to some of these initiatives to new businesses coming into the area. These are all new attractions to us, helping with grants from the RMS Segwun and Wanda III and things of that nature. These are really important to us.

The Chairman: Thank you very much, Randy. We appreciate it. I know you are a little under the weather, so we give you a big hand today. It's very good of you.

Mr. Clark: I think I would lose my job here if I didn't extend an invitation to all of you to come back to Muskoka with your family groups and your friends. You have my card. You can always give us a call. We'll help find a nice place for you and things to see and do.

The Chairman: I note that the district chairman noted that. Thank you.

I'd like to call on our next witness. I'm very pleased to have as a witness today the chairman of the district of Muskoka, Mr. Gord Adams. Welcome, Gord.

Mr. Gord Adams (District Chair, District Municipality of Muskoka): Good morning,#Mr. Chair and members of the committee.

If you have a copy of this, you can tell that I started to write this on Sunday of this week past. My first sentence says ``a warm welcome to Muskoka''. That comes from the heart today. It's a beautiful winter wonderland out there as we speak this morning.

I'm sure some of the things I will say this morning you've already heard. I listened to some of the things Randy said, and I'm going to repeat some of those things in my brief this morning.

But I am pleased to have you here, Andy, and your committee. It's nice to be in front of you. Welcome to Muskoka.

It's a pleasure for me to be here representing the District Municipality of Muskoka and its22 members, comprised of six area municipalities. I'd like to provide a few introductory remarks that will set the context for my presentation.

Muskoka is a premier vacationland, as Randy has alluded to. Within our 1,600 square miles exist hundreds of the finest recreational lakes and rivers you will find anywhere within this great country. Over the last two centuries the appeal of these waters for tourism and recreation has been at the heart of the economic base of Muskoka. Tourism is by far the largest employer in Muskoka and it in turn directly impacts the success of our service and construction industries. In essence, as tourism goes, so does Muskoka.

Our permanent population is approximately 57,000, and this triples when you take into account the seasonal population. Most of the business in Muskoka is done between the May long weekend and Thanksgiving, which creates a whole set of issues, such as interruption in employment, the often legitimate need for income assistance, demand for part-time work to bridge the seasons, and fluctuating cashflows in virtually every business. It is important to note that the average wage in Muskoka is 20% below the provincial average.

We are located within easy reach of the greater Toronto area and the Golden Horseshoe. Our continued population growth is originating predominantly from the increasing number of retirees who choose to leave urban Ontario, which is an hour south of us, and move to a superior environment and lifestyle. Thus our population is an interesting blend between families that have lived here for generations, seasonal residents, and others who have chosen to relocate permanently to Muskoka for retirement, or in some cases employment.

Where do we need help? I believe that from the federal government we need help with the big picture, the big issues, the matters that confront almost every community that has aspirations for its future.

I'm going to make my comments under five major headings: tourism, forestry, community economic development, the Canada Fisheries Act, and the need for an infrastructure program.

On tourism, I know the federal government has significantly increased the funding for tourism in Canada during the past year or two. The district is a major contributor to our local tourism agency, Muskoka Tourism, and therefore I'm generally familiar with tourism promotion and marketing from our perspective. I must admit, however, that I do not know how the additional federal funding or resulting programs are helping Muskoka tourism or individual resorts to sell our tourism products to Canada and the world. Marketing tourism internationally is really beyond our financial and technical abilities. We need the assistance of the federal and provincial governments to develop the appropriate marketing mechanisms and support the distribution of this information.

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We know that Muskoka is a world-class destination. We have tourists travelling here from around the world. For example, a trip to nearby Algonquin Park on our eastern boundary or a cruise on the RMS Segwun steamship from Gravenhurst will only prove to you that there are people from all over the world.

I told a little anecdote to Andy not long ago. I took a trip a couple of years ago to Anchorage, Alaska, and went on a paddle-wheeler in Anchorage. I was wearing an RMS Segwun hat at the time and someone from Germany walked up to me and told me the best ship they'd ever taken a ride on was the RMS Segwun two summers earlier.

Our tourism destinations and our ecotourism facilities in north Muskoka are known worldwide. However, we're just scratching the surface and much more needs to be done to market that.

I would encourage the appropriate federal departments to provide more information about the new opportunities to local government and our agencies. Come and talk to us so that we understand how to use these programs to reach the rest of the world.

I understand that there are speakers today representing the forest industry so I will touch on this subject very briefly. Within Muskoka the forest industry employs many people within the particle board building supply mills and also within the firewood supply business. We certainly support the continuation of responsible forestry practices and the harvesting of trees for these purposes.

I believe that in the future we will have a much more difficult time balancing the interests of the forest industry and the interests of the tourism industry. If you take a trip into Algonquin Park, it's the natural environment there that attracts people. There are a number of people within our society today who would say the harvesting of trees is not beneficial to the environment, and those voices are becoming stronger all the time. We believe that the balance can be maintained and we can have a healthy and vibrant forest industry as well as grow a very vibrant ecotourism industry.

With respect to community and economic development, I'm going to change the focus and talk a little bit about community economic development generally. We appreciate the efforts of the Community Business Development Corporation in Muskoka in providing loans to businesses and also conducting community economic development programs.

From my experience as an elected municipal person, community economic development must be driven from the grassroots. In my opinion, the service must be designed to meet the needs of the local community, however the people in that area define it, whether it's a town of 12,000 or a village of 500. Therefore, I would encourage the Community Business Development Corporation to utilize the strengths of local communities in promoting this area for business development.

The six area municipalities in Muskoka wish to continue their role as primary contact for business attraction and retention. I would encourage the CBDC to formulate programs in support of this philosophy and to fulfil a valuable role in providing expertise and assistance to the individual communities.

On the financial side, I understand that the Community Business Development Corporation is pursuing new avenues that would allow them to raise the limit of their loans beyond the current maximum of $75,000. This would be a step in the right direct. The current limit is not very effective for many of our accommodation or attraction facilities, and it certainly is not sufficient to attract new large businesses to the area. At the same time, perhaps this service needs to be rationalized with the funds available from other loan providers.

I would be remiss if I did not speak to the committee today about the Canada Fisheries Act and how it is being implemented in Muskoka. Also, let me say at the outset that we are very proud of our record in Muskoka in protecting our environment and our resources. We are one of the few municipalities in Canada that has land use planning policies about the importance of protecting fish habitat and water quality. On the other hand, there are some operational problems that I would like you to consider.

As you may be aware, whenever works are undertaken in or close to a waterway, a permit is required from the Ontario Ministry of Natural Resources under the Public Lands Act. Over the past five years or so the permanent administration system has evolved from a state in which the requirement for a permit was largely ignored to a point at which the federal government is frequently involved. The reason for this is that the MNR refers all its applications affecting fish habitat to the Department of Fisheries and Oceans.

The situation right now is that applications for permits to undertake even the most modest of works are often referred to the Department of Fisheries and Oceans. This has led to substantial delays and cost increases for projects that are important on the municipal level, but are, we suggest, inconsequential on a national scale.

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An aggravating factor is that since April 1995, all matters dealt with by the Department of Fisheries must satisfy the requirements of the Canadian Environmental Assessment Act. Despite the fact that all municipal undertakings must comply with the requirements of the Ontario Environmental Assessment Act, in many cases they must now receive approval under the CEAA as well.

As an example of the problem to which we refer, please consider the district's proposal to reconstruct a section of Muskoka road number 26, in the township of Muskoka Lakes. This project includes the replacement of a culvert under the district road as well as a second culvert under a side road. Both culverts are about 36 inches in diameter.

Following completion of Ontario's environmental assessment process, the district applied to the MNR in May 1994 for a work permit, as required under the Ontario Public Lands Act. The MNR identified creek chub - minnows or sticklebacks, as some of us may know them - in the waterway and referred the matter to the Department of Fisheries and Oceans. The Department of Fisheries and Oceans in return referred the application to the federal department responsible for the CEAA.

At this point we would like to make it clear we have absolutely no complaints regarding the conduct of staff at either the federal or the provincial level of government. We are satisfied that all involved have provided proper service within the legislative and administrative frameworks in which they are required to work.

Our point is if the federal government is to be involved in every project of this type, the requirements of Ontario alone will surely overwhelm even the most capable bureaucracy.

The district has hundreds of culverts throughout its road inventory and there are thousands more within the province. We find it hard to believe the federal government has a compelling interest in regulating the environment around these pipes. Indeed we are somewhat surprised the MNR is interested.

I bring this matter to your attention because the resources of three levels of government are being brought to bear upon issues that in our opinion do not warrant this level of attention.

We believe we have an obligation to examine our respective roles in this matter to ensure that public resources are used wisely, especially in these difficult economic times.

One of the most successful programs we've participated in was the recent Canada-Ontario infrastructure program. That program assisted the district and area governments in Muskoka to make permanent, substantial improvements within our communities - improvements that facilitated growth and investment and at the same time provided badly needed construction jobs.

In the case of the district, we constructed municipal infrastructure - roads, sewers, waterlines - throughout the communities in Muskoka.

We also constructed a new visitor information centre on Highway 11 to promote our tourism industry and helped complete a second visitor information centre on Highway 169. Thousands of people visited these centres this past summer and learned more about the tourism facilities in Muskoka. In turn, businesses that benefit from tourism invested money in the programs delivered to these services.

We would encourage the federal government to consider another infrastructure program in the immediate future. It allows a higher level of investment in our communities, it demonstrates promise for the future, and it creates employment.

We would, however, recommend that the paperwork be streamlined and simplified so the projects may be grouped into one application, and that additional flexibility be provided between the cost of each project in the group.

Thank you, Mr. Chair and committee members, for providing me the opportunity to speak with you today on behalf of the district. I'm very pleased this committee has included our area in the hearing schedule. I trust we provided some information that will assist you in your deliberations.

The Acting Chairman (Mr. Wood): Thank you, Mr. Adams. It's a wild and blustery day, not the greatest day to be out, and we certainly appreciate your making the effort.

I'd like to start the questioning period with my colleague, Mr. Asselin.

[Translation]

Mr. Asselin: First of all, as a Member of Parliament, I would like to say that I am pleased to meet with elected municipal officials. We have met with a number of them during our travels. We noticed that elected municipal officials were much more concerned about a future infrastructure program. I was a municipal councillor in Baie-Comeau for 14 years. I hope my political career in Ottawa will not be that long. I'm sure a number of people would agree on that.

I would like to ask you a question about the infrastructure program. I would like to know whether there are some small municipalities which could not have access to the infrastructure program and others that did not meet the standards it required.

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I would also like to know if you would like the federal government to transfer this money directly to the Ontario government so that it could manage the budget and administer the program jointly with the municipalities.

What recommendations could you make to the committee to help the federal government to improve the infrastructure program so that it is fair to all municipalities?

[English]

Mr. Adams: My first suggestion would be to simplify it. I have no problem with the federal government transferring the funds to the province and allowing the funds to be administered through the province and municipalities. I think that worked well the last time and will work well in the future.

You asked if there are small municipalities that might not have met the criteria. In Muskoka, we are a restructured district, so we have only six municipalities, the smallest of which more than meets the requirements of the infrastructure program. So all of our municipalities within Muskoka were able to take advantage, and did take full advantage, of the last infrastructure program.

There is something that I think would have helped us the last time. We all recognize, at the federal, provincial and municipal levels, that we are living in fairly quickly changing times. If any of us looks back to our political lives even two or three years ago they were entirely different from what they are today. We had works we initially applied to do through the infrastructure program the last time around. Our priorities changed midstream. We would have liked to have taken money and quickly earmarked it to another program, but we found that this was a very difficult process to go through.

We had in one case promised money in one situation where the private sector was putting in 30%. The 30% share the municipality would normally have provided was being provided by the private sector. That private sector development didn't go forward. We then had a difficult time retrieving that commitment and putting it onto another program within the municipality.

So I recommend giving more flexibility to the municipalities to move the money from one project to another, as long as they meet the requirements.

[Translation]

Mr. Asselin: As the Official Opposition in Ottawa, we have been asking the government to extend the infrastructure program for at least two or three years. It was an excellent job creation program. Of course, we acknowledge that the jobs created are short-term jobs, but the fact remains that the program provided people with a better standard of living and better services. Some projects were carried out in municipalities that could not have afforded them otherwise.

People are quite rightly demanding these services, because the money for them comes from the income taxes everyone pays. If we can improve the standard of living and provide better services in municipalities, the program is ultimately a good one.

I am pleased to hear that all municipalities are eligible for the program, but I would like to ask a brief question in closing. Were municipalities required to carry out some capital projects out of their own budgets or by borrowing in order to qualify for the program?

[English]

Mr. Adams: Yes, the municipalities were committed to a 30% contribution for capital works. Just as a comment, I believe the vast majority of work done under our infrastructure program here in Muskoka - we took full advantage and would like to have had a second round - would not have been done if we had not had an infrastructure program. I alluded to that in my comments. It added to this community and benefited the lifestyles of people who live in this community.

You mentioned that the jobs created were primarily short-term jobs. I think we have an example here in Muskoka, a partnership with the federal government. As you're aware, the federal government is building a new medium-security penitentiary in Gravenhurst.

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We used infrastructure money to allow us to build water and sewer lines. They are not gravity-fed lines - what do they call those other lines, pressure...? Anyway, we ran water and sewer infrastructure lines approximately 5 kilometres from our plant to where the new prison is being built, and we used infrastructure money to build a needed provincial access road to the prison, approximately 2.5 kilometres long.

We could have done those programs on our own. We would certainly have had an impact on our taxpayers locally, but the infrastructure program came along at a time that allowed us to partner more with the federal government. We could say we recognize this project is going to be difficult to do within the budget the federal government set; we can find some creative ways of putting in some of the infrastructure off the penitentiary site - the water and sewer lines and the roads - and we will pay for them through a municipal-provincial-federal partnership.

That partnership will create approximately 300 full-time, permanent, well-paid positions within Muskoka. I think we can draw a direct relation to the infrastructure program and the fact that the prison is going ahead on schedule and within budget. I would like to think it played a role in creating some full-time meaningful jobs within Muskoka.

The Acting Chairman (Mr. Wood): Mrs. Cowling.

Mrs. Cowling: Thank you, Mr. Chairman.

One of the things we have heard about from witnesses right across the country is the duplication of services in various areas. This leads me to the question, how difficult is it to bring forward a viable tourism industry?

I would like you to take a look at it from the perspective of the country as a whole, from a global perspective. When we talk about building partnerships with infrastructure, and partnering different levels of government, would it be worthwhile to take a look at building partnerships within rural communities right across this country to help them establish tourism initiatives? I'd like your response to that - taking a look at it from a Canadian perspective.

Mr. Adams: It would be difficult for me to give you an opinion on a country-wide basis, but I can give you an opinion, say, on the provinces that border us, Manitoba and Quebec. I owned a cottage in Quebec up until last fall in the village of Laniel, northeast of North Bay, so I'm quite familiar with that area. I have snowmobiled most of Ontario, Quebec and Manitoba, and some of the eastern United States.

Tourism is a competitive business, as any business is. It's difficult to get competitors to become partners in business, because they all obviously want to exact the same dollar out of the tourist, if you speak of the tourism industry.

But my love of snowmobiling has had me speak many times to snowmobile clubs and to conventions on snowmobiling, and to teach people that the tourist is a mobile target all the time. We have reached outside of Muskoka to set up tourism tours, where you would spend one night here in Muskoka, you might spend the next night in Haliburton, and you might spend the next night in Parry Sound.

We've come to a realization in our own small tourism world that we all benefit by doing that and that not one of us benefits by trying to capitalize on that market by holding them in our community for three days. I think the tourist is becoming a much more mobile entity, so we have to take our piece of the action and make it a very viable and fun experience for the person while he's here, but recognize that he is going to move somewhere else, and someone from that area is going to come here.

I think that can be expanded on a country-wide and probably on an international basis. I think it's difficult. You asked me how it can be done. I don't know, because the human nature of people in business is to compete, and they don't want to share their customers or customer lists.

I think the more we talk about it, the less frightening that becomes. We are slowly learning that people are travelling further and faster and putting as much into a holiday as they can; that they're no longer going to the family resort and spending two weeks on the same 200-foot piece of shore; that they want to pack as much in as possible.

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How can the government make it easier? I wish I could tell you. I'd be a consultant if I could tell you.

Mrs. Cowling: Thank you.

The Acting Chairman (Mr. Wood): Mr. Serré.

Mr. Serré: Thank you, Mr. Chairman.

Mr. Adams, thank you very much for a very good presentation. We agree on so many things that at some points I thought I had prepared your brief myself, especially when it comes to forestry and the implementation of the federal Fisheries Act.

I don't agree with my colleague from the Bloc too often in terms of giving all those powers to the provinces, but I have recommended on many occasions that the federal government get out of inland water management totally, except the Great Lakes and the bodies of water that border the United States - international borders. Would you agree with that, and would you like this to be part of the committee's recommendations?

Mr. Adams: Yes, I would agree with it wholeheartedly. In fact I would go so far as to say I don't believe the province has much of an interest in some of the works that we're doing. In the Fisheries Act example I used, I don't believe the Ministry of Natural Resources had an interest in that particular culvert. I would even say you could down-delegate it even further. I think our provincial government here in Ontario is probably going to do that anyway with some of the responsibilities - they're down-delegating at the provincial level to the municipal level.

But you're right, I think the federal government should restrict its interest to oceans and significant waterways within the interior. I would say certainly the federal government has an interest in the Great Lakes and the canal systems that connect those, but not in inland waters and freshwater lakes.

Mr. Serré: The problem is not only duplication within the various levels of government, but within departments of the same government. I could give you examples of where DFO gave permission, as well as MOE and MNR and whatever, and then the coast guard comes in and says ``you can't'' and the project is delayed another three months. I hope this is well-recorded, because I'd like to see this as a recommendation.

One small question, Mr. Chairman, on the infrastructure program. I think there is no doubt in anybody's mind that it has been a huge success overall, not only in terms of developing a good infrastructure, but in creating permanent jobs. I disagree that it creates only part-time jobs, because when you have the right infrastructure, this is where the new permanent jobs are going to come.

There seem to be two schools of thought. I'm not saying there's going to be another infrastructure program - that will be the decision I guess of the Prime Minister and the Minister of Finance - but there certainly is a lot of discussion about it. One school of thought is saying we should restrict it to municipal infrastructure - more or less what happened the last time, with a few exceptions. The other says we should have a program that is more business-development oriented, which would include tourism infrastructure and so on. What are your thoughts on that?

Mr. Adams: I think you gave the answer in your question when you said that good infrastructure is the egg that hatches business development. If you don't have the water and sewer capacities, if you can't take the lines out to the plants, then you have no interest in those plants. If we look back only to the 1980s, developers were chasing sewer and water capacity - wherever there was capacity, that's where the development took place.

So I would support the infrastructure program at the municipal level and would allow it to do both. I think you could do both. You could have it help the business sector or have municipalities partner with the business sector using infrastructure money, or you could use it strictly on municipal works.

I know there was a great deal of debate the last time around as to whether you should be using the money on recreational facilities, for example. My own personal view is, I don't think you should. I think that it should be put into hard services - into sewer, water and roads - because without good roads and good infrastructure we don't have an economy to drive.

Mr. Serré: Thank you.

The Chairman: Mrs. Cowling.

Mrs. Cowling: Mr. Chairman, I would just like to clarify something with Mr. Adams.

I want to come back to a question that was raised by my colleague. You indicated that the federal government should restrict its involvement in certain areas. As a government, we have withdrawn from forestry and mining; however, we are still involved in the science and technology end of that, and so we are a very strong resource base for provincial areas. I'm wondering, just for clarification and for the record, are you saying that we should be withdrawing our services on science and technology, for instance, to the Freshwater Institute and those types of areas?

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Mr. Adams: Absolutely not.

Ms Cowling: Thank you.

Mr. Adams: I think the federal government has a large role to play in research and development when it comes to science and technology. I don't think we can rely solely on the business sector to fund that, if for no other reason than the fact it'll only fund it with a profit motive.

I think the federal government has done a great deal in science and technology research and development that it should continue to do. In fact, I would say for the youth of this country we should be doing more because none of us know what this country will look like in ten years. Look at how quickly the world has changed electronically.

I would like to introduce this morning a young fellow with me, Liam Winegard. He's a grade 8 student at Gravenhurst Public School, who is spending a day in the workplace with me.

I toured the district office and one thing that struck me was the printing room. We used to have a print shop at the district, as I call it. There are no printing machines there any more. All of our printing is done on electronic photocopiers, which are a lot faster and a lot cheaper.

I then took him to the computer department. When I first entered the district office, the computer electronics alone completely filled a room about 20 by 20 that had to be climate controlled and air conditioned. That entire room is now being run by Felix, Fido, and somebody else - three little plastic boxes with names on them, which are running all of the computer hardware and software in six area municipalities and parts of the boards of education. They're all being run out of a system you could put in the trunk of your car.

If you'd asked me six years ago whether that was possible, I'd have said you were from another land. They're telling me that probably within two years they'll be able to put that in the glove box of a car.

The world is changing so fast that we can't predict what's going to happen. I think the government could do more in its science and technology and research so there will be very intelligent, well-meaning, high-tech jobs for the kids who are coming up through the program, of which I have two.

The Chairman: Mr. Wood.

Mr. Wood: While you were absent I did such a great job of getting all the important questions down.

The Chairman: Liam, why don't you come up and sit with Gord?

Some of you may recognize Liam's last name - Winegard. His grandfather was an MP in the last Conservative government.

An hon. member: Bill, right?

Mr. Wood: Bill Winegard. This is Liam, the grandson.

Gord, you listed five major headings and ranked them. Are those your priorities, or did you just do that ad hoc?

Mr. Adams: They're just down there ad hoc. I don't think any one would take priority over the other.

Mr. Wood: Good.

The Chairman: Thank you very much, Bob.

Just before letting you go, Gord, one of the comments you made about tourism is one I brought up in our hearing, and I think it's very important. You made the observation that the Canadian Tourism Commission - you didn't use it by name, but essentially I think that's what you were referring to - has been very valuable in dealing with some of the largest partners such as CP, Air Canada, and that type of institution. But we need to find a way for the smaller tourism operators - the types we are most familiar with here in Parry Sound-Muskoka - to have an opportunity to access those partnerships. It shouldn't just be spent on the very largest of entities.

Mr. Adams: Thank you, Andy. I happen to agree with you, and I've spoken to you about this. The tourism industry is a difficult one at best, and many of the small operators within Muskoka, which I would say make up the majority of the employment within Muskoka, hang by their fingernails from Thanksgiving weekend until May 24.

The federal government now has an interest in helping those people. What can it do to get that information pushed down to the small operator? I'm talking about the small marine operator who may employ three or four people through the summer. How can the program help him - that's the message that's not getting through - or how can the federal government help Muskoka promote itself worldwide?

We believe the ecotourism market in Europe has a great deal of interest. All you have to do is look at the number of Europeans who travel to Algonquin Park. How do we get the rest of the Muskoka message out to them? I know the federal government can help us with that. It has to find the vehicle to get the information down to the grassroots.

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The Chairman: Thank you very much, Gordon and Liam, for being here today and taking time out of your schedules. I know the committee very much appreciates the input, and we look forward to the opportunity to provide you with the report, in which you will hopefully see some of your words reflected in our recommendations.

Thank you very much.

Mr. Adams: Thank you, Andy, and thank you, committee.

The Chairman: I'd like to call upon our next witness and our last one before lunch, from Muskoka Heritage Foundation, Don Gordon.

We'd ask you to make an opening statement of about ten minutes, and then we'll turn it over to committee members for questions.

Mr. Don Gordon (Muskoka Heritage Foundation): Good morning. I'd like to thank you for the opportunity to address you today and to commend this committee for taking such an active interest in the economic affairs of rural Canada.

There are just two things I'd like to share with you this morning. First, I'd like to describe our organization, the Muskoka Heritage Foundation, which is just one example of a growing number of private, local conservation groups emerging across Canada. Second, we'd like to provide you with examples of how the wise use of our natural resources contributes to the prosperity of this region.

First, about the Muskoka Heritage Foundation, it is a registered charity and governed by a volunteer board of directors. It's drawn from the various constituent communities of Muskoka. It has more than 500 members and stewards, and the majority of all of these people are local landowners.

The foundation is actively involved in the conservation of privately owned lands. This is important here in Muskoka because of the high level of private ownership, and I think it is important in general, since public land holdings, while they're able to protect core areas, still require private land stewardship in order to buffer and connect protected areas to preserve their ecological integrity.

The mechanisms we employ include public education and information, such as newspaper articles, newsletters, and our storefront information centre. We also enter into voluntary stewardship agreements with landowners, and we currently have agreements in place on 34,000 acres in the district of Muskoka; that's a total of 2% of the land area of this district, which is greater than the total federal and provincial parks in Muskoka, so it's a significant amount of land.

Perhaps most importantly, we function as a land trust for the area and directly manage and own nature reserves. We also hold conservation easements on nature reserve properties.

Your committee is in a position to really help bolster the role of land trust in Canada. Last year the finance committee made a series of recommendations to reform the Income Tax Act in order to favour the donation of ecologically significant land.

This spring's budget saw the implementation of several of these recommendations, but critical changes to the capital gains provisions were still missing. It can actually cost Canadians money to donate land to a charity.

Perhaps if your recommendation were added to that of Finance, we would finally get the tools we need to allow community organizations to help the governments in this country meet their conservation goals.

The Muskoka Heritage Foundation is very interested in sustainable development. Working in concert with private landowners as we do, we recognize their economic need to generate income from their properties. We feel that just as a healthy economy needs a healthy environment, our ability to protect the environment relies upon a strong economy.

I'd now like to turn to an example of forestry in Muskoka, which I think illustrates the success of using a sustainable approach to natural resource use.

As with most rural communities, natural resources provide the foundation for our local economy; however, unlike many communities it is the recreational and tourism uses of natural resources that make the largest contribution locally, with extractive uses being of secondary importance.

This fact has meant that we have all been well aware of sustainable development here, long before that label came into vogue and current use. Virtually everyone in Muskoka recognizes that the health of our economy is directly linked to the quality of our environment, which in turn attracts so many tourists and cottagers, but it's important to realize that Muskoka is not a park and tourism alone can never meet the economic needs of this district.

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Forestry, an industry that developed this region, continues to be of great importance and holds enormous potential for our future. In Muskoka we are developing new mechanisms for forest management that seek to optimize the benefits of forestry while maintaining the integrity of our primary tourist industry. We are in the process of establishing a non-profit corporation to hold the crown forestry licence for the entire region. That will also include the Parry Sound area, portions of Almaguin, and Muskoka district.

This organization will be governed by a board consisting of three industry representatives and four from the community at large, leaving the community in the driver's seat to reflect those important stakeholders. Among the foremost goals of this board will be the certification of our forest as a sustainable forest. This in turn will increase the value of our products internationally and secure access to new markets. Related efforts are also under way with respect to private land forestry in this area.

Muskoka is a model area for sustainable development. The Muskoka Heritage Foundation, Muskoka's conservation organization, is working in concert with government and industry towards a common goal of meeting the needs of the present without compromising the ability of future generations to meet their needs. Natural resources are the pool of capital upon which we all draw. Sustainable development is the earning of income from capital deployed, while traditional approaches to development have simply been the depletion of capital.

Today I have been able to present a very positive picture. Muskoka, however, is only a small progressive community, and there are still many people who hold the belief that the environment and the economy are on opposite sides of the balance sheet.

At a national level your committee is in a position to deliver an affirmation of sustainable development as our national goal; recognition that natural resources have value, even when they are not exploited, as many resource managers still view a standing forest as nothing but a waste of lumber; and recognition of non-traditional natural resource opportunities, which are becoming very prevalent here in Muskoka, such as wilderness and ecotourism.

Finally, we hope that you will join your colleagues at Finance and recommend that land trusts be given the tools they so desperately need to help secure a natural legacy for Canada's future.

That concludes my comments.

The Chairman: Thank you very much.

Mr. Asselin.

[Translation]

Mr. Asselin: First, I would like to congratulate you on selling your organization so well, but that will not get you very far with the committee.

The committee decided to travel this week in Ontario, Manitoba, Saskatchewan and the Northwest Territories to see what could be done to improve rural economic development.

I would like to know what Muskoka expects of the federal government. What is not working at the moment? What are your priorities for improving the standard of living, job creation and education in this region? What are your expectations? What are your greatest concerns? What do you expect the federal government to do to improve rural development?

[English]

Mr. Gordon: Purely as a conservation organization, our first interest is in the protection of the natural environment, but we recognize that this needs to take place within the context of a healthy environment. I think what we would like the committee to take from this is that although there's an opportunity to create jobs at the expense of the environment, this will be a short-term gain and a run-down of our natural capital. There's an even greater opportunity to pursue a sustainable approach to job growth and creation.

For instance, the practice of sustainable forestry generates more employment than traditional approaches to forestry. I think if the federal government is stringent and follows through with the initiatives arising, for instance, from the model forest program, we will have a very healthy resource-based industry here in Muskoka.

The Chairman: Mrs. Cowling.

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Mrs. Cowling: Thank you, Mr. Chairman.

You indicate in your brief that forestry is an industry that has been developed in this area. I'm wondering if you have looked at the concept of value-added and what you're doing in that respect.

When we move into a highly technological era, there has to be some balance. I'm wondering, with respect to jobs and our moving quite rapidly with technology, how we as a government preserve the balance so that we can maintain jobs and bring jobs into areas such as Muskoka.

Mr. Gordon: Speaking specifically about forestry - and I'd like to indicate that I'm not a forester, so my technical grasp of it may not be very accurate - the pursuit of certification as a sustainable forest feeds into European markets, where there's an enormous demand that the wood product in furniture manufacturing or house products comes from a certified sustainable forest.

This process requires a greater degree of tree marking, selective harvesting, replanting, and so on. Each of those areas generates more employment.

It's not generating employment by refusing new technology or using old-fashioned methods in place of technological advance, but by applying the latest technology to follow the best possible silvicultural practices and stimulate new markets for our product here.

Mrs. Cowling: Thank you.

The Chairman: Mr. Serré.

Mr. Serré: You say in your brief that many people still hold the belief that the environment and the economy are on opposite sides of the balance sheet. I agree with that. I think protection of the environment and development are not mutually exclusive.

I don't know whether I can phrase my question so that you understand what I'm saying.

Could you give me some examples whereby protecting the environment actually creates jobs?

Mr. Gordon: Without being able to produce statistics for it, I think you need to look at the environment as a sector in our economy and see just how many people are now involved in the protection of it. Whether it's through various government ministries or the in-house pollution control experts in industry and our universities, it has in and of itself become an industry.

I gather that Ontario is a leading exporter to other countries of environmental abatement technology, such as smokestack scrubbers, alternative products, and alternative processes. I think if we take a leadership role in solving environmental problems here, we then can turn around and market the results of those efforts to an international audience.

The Chairman: Don, one of the things you mentioned in your brief is the recognition of non-traditional natural resource opportunities. You made mention of wilderness and ecotourism. Do you have any idea or any kind of numbers you can attach to that for Parry Sound-Muskoka - the value of those particular enterprises?

Mr. Gordon: I can't give you a dollar figure on contributions in terms of the overall tourism mix. Clearly tourism is noted as the single largest economic activity within this district.

I think I can only refer to more anecdotal evidence of the fact that all the major resorts have recently developed in-house environmental programs to attract new visitors, particularly European destination-bound visitors. Just on the evidence of the private market operators responding to this need, they must perceive it as an important element of the mix.

The Chairman: I have a final point so I can understand what you're talking about with donating land to a land trust. The changes in the tax act last year allowed it to be written off 100% against other income. That was the change, and I think it was reported.

I'm not sure I understand the issue on the capital gain. Are you saying they're not getting the capital gain write-off when they do that?

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Mr. Gordon: If it's not a primary residence - and an example would be someone donating a conservation easement to the Heritage Foundation. The value of the easement may be only a fraction of the property, so the receipt they get may be 10% of the value of the property. It's a deemed disposition, so whatever capital gains they experienced on ownership of the property will be calculated at the point at which they give the easement.

Similarly, people typically make donations to land trusts towards the end of their lives, when they've perhaps held properties for thirty or forty years and these properties are secondary residences. Just about anyone making a donation of land will be liable to a large capital gains consideration, which will obviate the benefit arising from the Income Tax Act. That's the difficulty people are facing still.

The Chairman: I would suggest, Don, if you have an opportunity to do a little bit of a brief on that - we will have a pre-budget consultation taking place during the week of November 11 in Bracebridge - you might want to table it. It will go directly to the finance committee, which is doing a pre-budget consultation.

Mr. Gordon: Thank you for the opportunity.

The Chairman: Thank you very much, Don. We appreciate your taking the time to come out here today to tell us a little bit about the important work of your organization. Thank you as well for your suggestions for the committee's direction. Thank you.

Mr. Gordon: Thank you.

The Chairman: The committee now stands adjourned.

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The Chairman: I'd like to call the meeting back to order and welcome Russ Brown and John Finley, who are going to give two separate opening statements and then we'll have a discussion together.

Both individuals operate regional tourism generators, one being the RMS Segwun and now its sister ship, the Wanda III. Mr. Finley operates here in Huntsville the Muskoka Pioneer Village. Both individuals agreed to appear on very short notice, after we had a hole in the schedule.

My appreciation to you for taking the time, gentlemen. Over to you.

Mr. John Finley (General Manager, Huntsville Pioneer Village): I'd like to thank the committee for the opportunity to speak in Huntsville this afternoon. I certainly hope the panel is not responsible for the arrival of winter.

My name is John Finley, and as everybody knows, I'm the general manager of the world-famous Muskoka Pioneer Village.

We in Huntsville take tourism and the entertainment of our valued visitors very seriously. Muskoka Pioneer Village in Huntsville is the most active living museum in the area. Just five short years ago we saw less than 8,000 people in an entire year. Now we're seeing approximately 35,000 to 40,000 people. It is a role we have developed in Muskoka that I hope will continue.

It all started with a vision of the Huntsville Rotary Club, and we are now controlled by the Corporation of the Town of Huntsville.

The future for museums has many challenges, though. A lot of the time we are seen as a soft service, an easy target for those individuals looking for an easy out on a tough budget.

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Some museum people, though, look at this as a sign of reduced services and problems that cannot be overcome. I do not. I think this is an opportunity that should be looked at in an enthusiastic manner. Faced with financial decline, museums must look at other means to seriously survive.

The traditional bubble around the artifact must be tempered in how that artifact must be preserved in the future.

The future of museums and the tourism field can be summed up in three words: packaging, partnerships, and volunteers.

Packaging, if you're not already doing it, should be seriously looked at. Those who fail to do packaging with other sites in the region will fail.

Partnership speaks for itself. I'm really pleased with all levels of government, especially the federal and provincial governments, stressing the importance of partnerships. It's the road to survival. Involvement of all sectors to ensure regional stability is a must.

Volunteer participation in a museum or any multi-function activity designed to entertain tourists is a must. This important segment brings to the facility something that cannot be brought to the facility through the traditional employee-employer relationship. Volunteerism brings you the community, brings acceptance to the community and brings enthusiasm to the community. It's something that draws us all together.

Not many people in the museum field these days talk about the road to self-sufficiency, but I will. Faced with the dwindling pressures of assistance from all levels, we must look at opportunities that really do exist for self-sufficiency of museums. But we also must look at the roots we're formed from: preserving yesterday for tomorrow.

There are ways of accomplishing that. At Muskoka Pioneer Village we are charting a course that will provide an operation that is self-sufficient and maintain the very reason we are here.

What can government do for us? The government of the day can move quickly to provide regions with funds to include our global awareness. We just hosted, with Andy's help, the Ontario-Quebec Marketplace. We received incredible global awareness all in one evening. It was a very important aspect of developing the community's economic well-being.

The federal government could provide us with regional funds and leave the regional funds here to be distributed by the local operators of the tourism and hospitality sector. If the government of the day is to achieve more results at a reasonable cost, they must place more importance on regional input. We've already started on that.

Thank you.

I hope I haven't taken too much time, Andy.

The Chairman: No, not at all. We look forward to asking you some questions, but first we'd like to hear from Russ.

Mr. Russ Brown (General Manager, Steamship and Historical Society): Thank you very much.

I'd like to thank the committee for the opportunity to speak today.

When I was first approached, they talked about the natural resources, and really the district of Muskoka was created by natural resources. Our most important industry is tourism, and without the natural resources we have, the tourism industry wouldn't exist.

Muskoka's been in the tourism business since 1870. When you talk about tourism and natural resources in Muskoka, they're inseparable. One without the other wouldn't exist.

Our company's first president, A.P. Cockburn started the first commercial fleet of steamers in Muskoka in 1866. Eventually the company had a fleet of ten ships. Something that may be of interest to your committee is that in 1867, the first year of Confederation, Mr. Cockburn was elected a member of Parliament for this area on the reform ticket. Everything that comes around goes around, I guess.

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To give you an idea of growth, Mr. Cockburn won the election 676 votes to 407. When you compare our year-round population in Muskoka now, we're over 50,000, and depending on who you listen to you can multiply that five, six, seven times during the summer.

As far as our company and the one ship we have of the ten, the Segwun, is concerned, in 1959 the steamboat era was over. Other forms of transportation were certainly a lot faster, roads were better, and the steam era was over. The Segwun was tied to the dock in Gravenhurst for almost ten years. Then a group of really dedicated steam buffs decided that they could restore it, and in the late 1960s they started. Eleven years and $1.4 million later, the Segwun was steaming. It has a couple of claims to fame. One is that it's the oldest operating steamship in North America and it's still coal-fired. So when you watch those travelogues on the Mississippi, we have something much better here.

In terms of the money raised to start the Segwun, we received just over $1 million from the provincial government. It certainly helped that at the time Frank Miller was our member in the provincial legislature because he was also the treasurer at one point. We also raised money from the Ontario Road Builders' Association and the public to complete this.

In 1974 Pierre Elliott Trudeau came to Gravenhurst to rededicate the Segwun. He gave it a lot of publicity and started it on its way. Our company now is owned by the Muskoka Steamship and Historical Society, and we have a volunteer board of 24 people. We have a mixture of summer residents who are Toronto business people as well as local businessmen.

After the first four or five years of operation it looked like it wasn't a viable thing to do. We lost $250,000, but in the last ten years we've been able to have a surplus each year, and now we have annual sales of over $1 million per year. We employ 31 people during the summer months and we spend $800,000 in the Muskoka economy. So we think we're a generator of jobs not only on the Segwun but away from it, and we do not get any government assistance at all - we did for the original part, for the restoration.

Just this year we took on the restoration of another vessel called the Wanda III, which is the last steam yacht owned by Mrs. Timothy Eaton. Prime Minister Chrétien came here in August and launched it. Our organization is raising $600,000 to complete the restoration, and we did receive $10,000 from the federal government towards that restoration.

The Muskoka Lakes were formed 10,000 years ago; as the glaciers left the lakes were created. The lakes are what have been bringing people to Muskoka for the last 130 years. The resorts, motels, hotels, and campgrounds depend on our natural resources to provide boating, fishing, swimming, wildlife, skiing and snowmobiling. Also, we wouldn't have the summer residents who are here and spend a lot of money in our local economy if they couldn't enjoy these activities.

Muskoka's natural resources give us a world-class product to sell. A lot of times when we talk to people they think of natural resources as mining and logging, but I'd like to think of the natural resources in Muskoka are just that, the natural resources. A lot of them aren't renewable so we'd like to keep the world-class destination we have now. Thank you.

The Chairman: Thank you very much. I turn it over to questions.

Mr. Asselin.

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[Translation]

Mr. Asselin: It is very interesting to hear about tourism, which is linked to history.

I found your comment that a Member of Parliament had been elected on the theme of reform very interesting. Times change, and nowadays, reformers are elected for one term of office.

The government seems concerned about the services it should be providing for people. We should be providing, within our means, increasingly efficient programs that are applicable to each region, and thus are different from one province to the other.

Do you agree that the federal government should be transferring money and powers to the provinces? Under a partnership system, the provinces could then transfer some funds to the regions in order to improve rural development.

The province is in the best position to develop its regions in accordance with the resources and manpower it has available. In this way, the income taxes paid to Ottawa and to each province would be properly and effectively used and more and more jobs would be created.

What are your concerns and what are your priorities if the government is to offer better services through more effective programs, while at the same time looking after regional development?

[English]

Mr. Brown: Having not really given it a lot of thought, I certainly think that partnership is the way to go. I believe in matching dollars, and if an organization can raise x number of dollars, especially in the cultural and historic field where everybody's out raising money and seed money is so important.... In general I would agree it's better that it come through the provincial government because in theory they're closer to the region. I would have no problem with that.

Mr. Finley: I have a problem with adding another level of government to disperse funds, because it certainly takes its toll by the time the much-needed dollar gets to the project. I have had no problem with the present funding, but adding another level to that is like having another child. The funding to the bottom-line project, I think, would be adversely affected.

[Translation]

Mr. Asselin: We know that provincial governments tend to give certain powers to the municipalities. However, they do not necessarily transfer the necessary money at the same time.

The problem is as follows. The federal government is cutting back on its transfers to the provinces. The provinces are cutting back on their transfers to the municipalities and development institutions, in particular tourism associations.

Municipal corporations are concerned with development, and that is where there is a shortage of money. If the federal government were to transfer money to the provinces and if there were a management partnership involving chiefly the municipal and provincial levels of government, together with regional development organizations, you would be better able to manage these responsibilities.

As a member of Parliament, I'm not in a very good position to tell you whether you should trade your car in this year or whether you should buy new kitchen furniture. If you have the money and the power, it's up to you to decide whether you should be doing these things. I think this is the situation that should prevail in all regions.

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People should take charge and work within a partnership involving the federal and provincial governments, all institutions and even the private sector in order to develop resources for export. The federal government could retain some powers, for example in the area of research and development. It could help businesses export their products internationally. But the internal detail should be worked out in the regions, in each of the provinces.

[English]

Mr. Brown: I really have no knowledge of export development. We run a small cruise ship in Muskoka, so I'm more centred on what's happening locally than the national picture. But we've found in the past in approaching government that we've been fairly successful if we had good documentation and a good pitch. That's about all I could add to it.

Mr. Finley: I'll echo that. There are no problems; there are opportunities. I think the great opportunity is for more of an education of what resources are available to the small people.

Your scope is a bit above my personal one in running a small community museum. I think there could be more focus on education and where we could find these grants. Sometimes we go around in circles finding out what things are out there. But I would be totally against adding different layers to the dispensing of whatever assistance there would be.

The Chairman: Mr. Wood.

Mr. Wood: Mr. Finley, I was really interested in how you turned things around at the museum. You mentioned the packaging end of it and how it is, in your mind, a road to self-sufficiency and how you went from 8,000 people to 35,000. How did you turn that around? There obviously has to be some kind of a success story there. How were you able to do that? Were you able to do that with assistance from various governments or just on your own? How did it work?

Mr. Finley: It started years ago with our master plan for survival. I was hired to basically maintain the survival of the village or increase awareness of it. Thank goodness, the village is still here today.

We looked at every avenue open to us to create a revenue source that would comply with why we're there. My esteemed associate here taught me something very interesting years ago when I first started, which is that we are in the entertainment business and all museums compete for the same dollar that is available and it is a dwindling dollar.

You have to be very good at what you do. You have to recognize the assets of your region. We recognized that the greatest international asset of this region was Algonquin Provincial Park and began communicating through the Internet, to various travel agents, etc., with packages that not only said come to Muskoka pioneer village, which the Europeans really didn't understand, but they did understand where Algonquin Provincial Park was....

Heritage and ecotourism is probably the hottest market out there at the present time, and we put that together. We basically listened to what our potential customers wanted and we gave them what they wanted.

Mr. Wood: The other thing you mentioned in your opening remarks was that you were looking for some kind of regional funds. We've gone around the country this week, and we're wondering, if the federal government did get into some kind of a program for rural development through tourism dollars, how that would work out. I've asked this question before, this morning, but do you think it would bring economic stability and certainty to the regions? If there were regional funds distributed...obviously the government is not just giving money away, and there has to be some kind of accountability for whatever funds are earmarked for each region. How do you envision regional funds and the accountability for it?

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Mr. Finley: The accountability is very important. The opportunity I see is that the funds are earmarked, and each region should have active partners involved at the delivery or floor level who understand the constant changes. Sometimes an opportunity can be missed simply because it takes too long for the elephant to swat the fly. I think having responsibility at a local level - fiscal responsibility as well as responsibility for delivery of the funds - gives us the opportunity to act quickly in situations that provide us with an incredible opportunity in the future.

I spoke about the Ontario-Quebec Marketplace we just successfully delivered in Huntsville and Muskoka. It was an opportunity that came to us very quickly through volunteers and a combination of different funding sources. We were able to pull it off and leave a global market wowed with what we can do in Muskoka. That ability to react to changing conditions and opportunities...the opportunities must be seized or they'll be lost forever.

Mr. Brown: Part of the problem comes when you are in rural Canada. Our market is really the Golden Horseshoe. We try to get overseas, but the majority of the people come from the Golden Horseshoe. We don't have a large inventory of things to do here. Our attraction is running a boat that can take 99 people at a time, and we run 90% full. It's a tough job to convince people who spend four hours in their automobiles if they're driving from Toronto, people who come to Gravenhurst and turn around and drive home, to take a two-hour cruise. John's project here in Muskoka is another thing.

We need more things. Then the advantage is that they don't come for just a day. As we say locally, we put bums in the beds and we have them here for two or three days. Government can help to create a greater mass of things to do.

Mr. Wood: Should we channel our money through marketing, more or less, to help groups like yours and Mr. Finley's to market the area?

Mr. Brown: I guess it's the chicken and the egg. You can spend money on marketing, but you have to have the product there at the end. We have to have enough mass here so that when you bring the people up.... Right now, if you did everything in Muskoka it would probably be a three-day stay. To get them to stay longer.... People used to come to Muskoka, rent a cottage, sit in front of the cottage for two weeks and then drive home. People don't do that any more. They want things to do.

We added another boat and another attraction; we have a small museum. We're trying to build that mass. We also work with inbound tour operators bringing people from Germany, which is one of our large markets. We get a few from France. We all talk about trying to get the Japanese and Chinese markets, but when you're the size of our attraction and have the dollars to spend, those markets are too far away and you just can't develop them.

The Chairman: Mrs. Cowling.

Mrs. Cowling: One thing I heard in your presentation that I don't think we've heard from any other witnesses is volunteerism. Having spent a number of years as a volunteer in my own home community, I know what it has done for people like me and people who have done that. You tend to develop a sense of pride and ownership in your community.

With a number of our young people leaving the rural areas of the country, they never have an opportunity to develop that sense of pride and ownership in a community. They lose something that we've been fortunate to have had some access to. How do you expand on bringing back that sense of volunteerism when in fact the majority of the volunteers in your community are elderly people? How do you stimulate that and bring it back?

Maybe I can paint a picture of my riding; it may well be like this area. It's a large geographical riding. It has a national park. It has a provincial park. The history is that they have traditionally depended on agriculture as their sole support base. We're finding that can no longer be. I think that's happening in many parts of our country.

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So how do we build on some of the other strengths we have within that community? For instance, we have two parks and we have a number of lakes. If you don't have the young people there, how do you start from that position. It's a difficult one and it's one we face in many parts of this country, because most of those young people are in large urban centres.

Mr. Brown: In our case, we have two volunteer boards. We've been very fortunate in getting good quality people to serve on the board. What we strive for is not to make it a social event, just to say I'm on the Segwun board, come have a couple of cocktails, and that's their obligation.

We make them work very hard. We pick them by what they can bring to the table. So we have an engineering board. The head of our engineering committee worked on the Canada space arm, for instance; the other one ran the largest shipyard on the Great Lakes. So we have that kind of quality person. As you say, they are older.

We work on trying to get younger people involved, and we're very fortunate to have an attraction that moves. We sail on the lakes and it's part of the Muskoka tradition to see the steamships go by. We don't find there's a lack of interest in the young people, certainly on the lakes. We go by their cottage, they wave at the captain and they come down. Ten years later they want to get married on the ship. They get tied to it very quickly.

We haven't had a problem finding people. Right now we've added a couple. On our board, 30-year-olds are young. You have to wait until they're established. It sounds a bit selfish, but we wouldn't invite just a young person to be on the board if he couldn't bring something to the table. We have to run our attraction like a business even though it's non-profit because we have no one to bail us out. So we're looking for partners, as directors, who can do something for us.

Mr. Finley: In my case, it's rather easy. I find the seniors - I'm don't just mean seniors being older people, but seniors meaning they have the capacity to pass on something that is very useful to our youth, something that may be lost in the future. When you get youth and mature groups working together, especially when you're employing the youth and have the senior volunteer component, they pass something off to the youth that they might never receive. They'll pass off an art.

We have a number of blacksmiths who have yet to reach the age of 18. They're being taught by some of our senior members of the community. Blacksmithing is an art that's going to be passed away. More important than learning how to be a blacksmith, they're learning from those mature members of the community the sense of pride that may be disappearing from the community and that sense of communityism, that sense of belonging.

One of my targets was to - traditionally a museum will only see that age group from 35 upwards. I wanted to lower that age group and have a longer duration of stay for the families. We've been able to do that by a number of different programs, by getting all age groups together. It's tough to start with, but it's amazing what happens when the relationship matures. We've introduced children's programming on a daily basis, as a revenue source as well as an avenue of getting children involved in the museum. Both have proved successful.

Our first year was this year. If we were lucky, we thought we would get 200 registration days for July and August. We ended up having 800 and some registration days. We brought in senior volunteers to work with the children. It went over incredibly well and it gave them a sense of well-being, both the younger and the older generations who were coming together - something that I find is lost sometimes.

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The Chairman: Thank you. A couple of questions, gentlemen.

First of all I'd like to explore the whole issue of government support of tourism infrastructure. Within the last couple of years, the province and the district came together and built the new tourism centre on Highway 11 as you come into the community.

Is the existence of that centre - has the expenditure and that investment been worthwhile for your two enterprises, or do you see its value in a more general sense than just specifically for your two entities?

Mr. Brown: Speaking for Segwun, the Muskoka tourism booth has been a plus. Again, it gives us exposure - dollars and cents. If someone's coming up the highway itself, it's a reason to stop. My attraction is not located on the highway. So you could drive right through Gravenhurst and never know we're there.

When you have a welcome centre like that where people can pull off, get information - even next year we're going to arrange for them to sell tickets from that booth, which will allow them to raise the money and also help us sell a few more tickets.

By all means, it's a nicely designed building. We never had anything like that before. When people drove up the highway - I'll give you an example, geography. There's a new casino just south of Muskoka, outside of Orillia. The operators of that are all from the U.S. We all went down and did our pitch. We had committees and everything else. We kept preaching Muskoka.

Their eyes would glass over because they'd pick up a road map and see Gravenhurst, Bracebridge and Huntsville, but they didn't see Muskoka. We take it for granted a lot of times when we use the word Muskoka that people know what it is. My daughters, who have gone to university in Toronto, say that when their peers in Toronto talk about where you're from, the farthest north most university students seem to know is Barrie. That's because Molson's have a big entertainment centre where they have rock bands.

Any exposure to information centres like that is so important because since that whole - I hate to use the term - Anglo-Saxon market came to Muskoka, the ethnic mix in Ontario and I'm sure in Canada has changed quite a bit. So we have to make people aware and an information centre like that does that.

The Chairman: John.

Mr. Finley: The Muskoka tourism booth is twofold, as far as I'm concerned. It's the physical presence when you first drive into Muskoka. Even more important is that their job and mandate are also to make people who are coming this way aware of Muskoka so that once they're here, we can attract them. I don't have the funds to attract them outside the boundaries of Muskoka. So it's a vital tool.

They're looking at some really new and exciting ways of doing that. I don't have the money to be a member of all the bus associations and marketing groups that the Muskoka tourism board is mandated to do. Without Muskoka tourism and their physical presence, it would be difficult for me to enjoy the successes I do today.

The Chairman: I have a second question and then I'll let you go. Both of your entities hire a number of individuals each summer and keep them on. Do you have any difficulty obtaining the people you need with the skill sets you need? Do you find you have a sufficiently trained labour force you can call on here?

Mr. Brown: In my case the federal government is really involved because the coast guard controls almost everything we do. We have to have different licences. Part of our problem, which is starting to hit us now, is to find engineers. There was a great wealth of steam engineers but they were all involved in the Second World War and by now they're all of an age.

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So we're having trouble finding people who have steam experience. We have a lot of them who know everything about diesel equipment.

So we do have a problem there. I'll get through the next two or three years, but I really worry about the future that way.

We have a sailing season of 128 days. It's not as if you could bring people on and teach the trade, because they all have to make more money than they can make in 128 days. I really don't have an answer to that.

We see problems on the technical side, mainly with the engineers. The deck officers, the captains and so on are much easier to obtain. Of course, the food and beverage people, we have lots of those in Muskoka.

The Chairman: John.

Mr. Finley: The skill level I see an opportunity for is, of course - I'll give my typical example. We've dealt with the Department of Canadian Heritage this year and Young Canada Works. That was a very helpful program. I gave the students my manual, which is yea-thick, and said tomorrow we're going to be meeting the public and I hope you'll be prepared to interpret all of the buildings and what the programs are about.

The term of training someone is long, and by that time the season is over, the opportunity passes. You get one person sufficiently trained and then he moves on to university or whatever. I think that's a similar problem with many of the rural areas. That's where I would really like to get the same opportunity by having some of the seniors involved with working with youth. It may enable us to do a lot more. Seniors seem to be a little more stable in their geographic areas than youth.

The Chairman: Thank you very much, gentlemen. Again, I appreciate you coming here on short notice. Both of you operate facilities that are of great importance to the local economy. You both generate regional tourism that brings a lot of people to Muskoka and you're a significant part of what makes the place tick. So thank you very much. I know all of the committee appreciate you appearing here today.

Mr. Brown: Thank you.

Mr. Finley: Thank you.

The Chairman: I'd like now to call on our next witness, from the Federal Economic Development Initiative in Northern Ontario, FedNor. We're pleased to welcome the director, Louise Paquette.

Ms Louise Paquette (Director, Federal Economic Development Initiative in Northern Ontario, FedNor): Thank you, Mr. Chairman.

The Chairman: I'd ask you to make an opening statement and then we'll turn it over to questions from the committee members.

Ms Paquette: Thank you for inviting FedNor, the Economic Development Initiative of Industry Canada in Northern Ontario, to join you today.

We believe FedNor's future is very closely tied to working with people of the north in building the necessary partnerships to achieve diversification of our resource-based economy.

I'd like to begin by talking a little about the area we serve, by looking at our demographic and community base. In terms of population, northern Ontario represents about 88.4% of Ontario's land mass but is home to only 8% of the population, roughly 822,000 people. Of that number, about 580,000 are in the northeast and the balance is in the northwest. It's interesting to note that the increase of the past 20 years has been mainly in the northwest.

In terms of community size, we have five major urban centres, accounting for roughly 56% of the region's population. The remainder live in single-industry, small communities in surrounding rural areas of mostly less that 2,500 people.

Significant numbers of people, particularly in the age group 20 to 44, are leaving northern Ontario. In the ten years between 1981 and 1991, the region's population grew by only 4%, compared to a gross rate in Ontario of 12%.

[Translation]

There are 68,000 aboriginal peoples, representing about 8.3% of the population, living in northern Ontario. We are particularly concerned about the fact that young people account for a very high percentage of this population. In some communities, up to 50% of the population is under 25 years of age. Of the 521,000 francophones living in Ontario, 31% live in northern Ontario, most in the northeastern part of the province.

Let us now look briefly at the obstacles and challenges we face. The skills level in northern Ontario is significantly lower than that of the rest of the province.

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The fact is that 44% of people aged 15 and over have not completed high school, compared to a figure of 36% for the province as a whole. The unemployment rate is higher here. In September, the unemployment rate in northern Ontario was 10.3%, while it was 9.2% in the rest of the province.

[English]

In terms of distance, as we know, distances are vast...having to travel four and a half hours to get here in a snowstorm. Because of distance, our transportation infrastructure is critical to northern business. Yet, our northern highways are deteriorating, our telecommunications infrastructure is inadequate, and our air and rail service continues to be reduced.

There's a lack of diversification. We find ourselves still largely dependent on our resource-based industries. Our international competitiveness depends on our ability to access information and technological innovations. The acquisition of information and new technologies will provide us with the knowledge necessary to survive in the global economy.

What is FedNor doing to help economic development, given those demographics and that information?

In March 1996, the Honourable John Manley announced a new direction for FedNor, including a new program mandate and a $60 million financial commitment to economic development in northern Ontario. While FedNor's focus remains on economic development, diversification and job creation, the program has moved from direct financial contributions to business, to the use of access to capital initiatives, delivered by FedNor's banking partners.

It's important to note that FedNor is about ten years old. Previously, FedNor provided predominately non-repayable, interest-free loans directly to business and assisted nearly 1,000 businesses in 100 communities. That represents about $61 million, including $8.4 million for Community Futures over the past ten years.

With the creation of a community economic development branch, the new FedNor organization has been specifically designed to deliver its programs and services on a community-based approach, or a sectoral approach in the case of tourism.

FedNor is working with its community partners, including the 22 Community Futures Development Corporations in northern Ontario, business networks, as well as the aboriginal and francophone communities, to forge new ways not only to access capital, but also to support business initiatives, provide advisory services, increase international competitiveness, improve access to new markets and foster entrepreneurship.

In keeping with Marlene's comment earlier about volunteers, I think you'll find it interesting to note that CFDC's real strength is that these corporations are made up of volunteers. They have usually an executive director and a staff person, but it's also all volunteer-based. Having attended a few of their meetings, I know they're an impressive bunch of volunteers.

In real estate, you talk about location, location, location. At FedNor, we talk about access, access, access - access to capital, access to information and access to markets.

With access to capital, FedNor utilizes the full array of Industry Canada tools that support the growth and diversification of SMEs. The Small Business Loans Act is one of them. Another one is the CCIP. I'm sure Mr. Wood is quite pleased with the Canadian community investment plan pilot that has just recently been established in North Bay.

Again, FedNor provides additional capital contributions to the CFDCs in northern Ontario in order for them to make additional investments to local small businesses...to loans, loan guarantees and equity investments, with the decisions made locally, by community-based boards of directors.

FedNor is providing new resources and challenges for CFDCs, including upgrading of their informatics capacity and Internet capacities. Again, our role there is to assist them in getting into the technology age. There is a renewed emphasis on the goal of financial self-sufficiency and additional investment funds for small business.

The CFDC network will also become access points for information on other FedNor and Industry Canada programs, extending our reach into rural Ontario.

Moving on to our not-for-profit initiative, we are actively supporting the development of a network of community-based economic development practitioners who will be mentoring and counselling SMEs and entrepreneurs throughout FedNor's region.

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FedNor has a responsibility to manage the OBCAP program. It is used to provide a source of capital in support of SME growth and development in the community, again, in Mr. Wood's riding. It keeps us nice and busy, trust me.

FedNor has entered into two access-to-capital accords in northern Ontario with the BDBC and the Royal Bank. A memorandum of understanding with the Business Development Bank of Canada has a broad focus and utilizes innovative financial instruments such as working capital for growth, high-risk loans and credit equity. The Royal Bank agreement focuses on high-tech and knowledge-based industries and provides high-risk term loans.

Both agreements are structured to target small businesses in the early stages of growth. Both agreements are roughly six months old, and the jury is still out on how effective they are.

On R and D and the recognition of the fact that some R and D projects are not bankable, FedNor has designed a pre-commercial fund. It is available to make direct repayable contributions to companies that undertake R and D but would not have access to bank financing because of the level of risk associated with the project.

We also have a memorandum of understanding with the National Research Council to promote IRAP, the industrial research assistance program, and to coordinate the council's activities with those of FedNor. This program complements both FedNor's pre-commercial fund...it has in fact a capital agreement with our banking partners in support of R and D.

Finally, we are working closely with the aboriginal working group and the francophone community to develop access to capital instruments and/or equity funds to meet the unique needs of these groups.

The second one is access to information. I lump it into three parts: connectivity, training, and business development.

The renewed FedNor recognizes that access to a modern telecommunications infrastructure is the key to business competitiveness. The full benefits and commercial advantage of the information highway can only be realized through a reliable electronic backbone across all of northern Ontario.

Today, there are wide discrepancies in the telecommunication services available in many of our northern Ontario communities. A priority for FedNor is to work with telecommunication service providers, community groups and aboriginal representatives to identify gaps in the telecommunications infrastructure.

In my short tenure with FedNor - I've only been there for about two months - we have met with the aboriginal community twice. We have an excellent working group that's met five times to date. We've also met with Bell Canada on several occasions, since their recent announcement that affects many of our northern communities. Again, it doesn't always connect us back. So it's like the highway goes by you, but you're not connected from your home.

FedNor will also support the efforts of community groups to educate and train northerners on the usage and benefits of modern telecommunications and identify business development opportunities that will open many doors of electronic commerce, telemedicine and distance learning.

Finally, FedNor promotes the use of Industry Canada programs focused on issues of access, youth employment, training, content creation and business development. These programs include things like Strategis.

It's the most comprehensive source of on-line business information about markets, industry sectors and technologies. I'm sure you've all heard much about Strategis, and, again, we try to introduce that into the north.

Other examples of technology programs are Technology Partnerships Canada, the student connection program, the community access program, SchoolNet and the Canada-Ontario Business Call Centre.

I was just at a presentation yesterday, and it is interesting to note that through that program they access over 900 federal and provincial programs, services and regulations.

As you know, the call centre is run out of Toronto, and 80% of the 20,000 calls per month are from business. Five hundred of these monthly calls are from northerners. So we're pleased to know we will soon have a call centre, the first, hopefully, of a few in northern Ontario.

[Translation]

Finally, let's talk about market access. Diversification and sustainable economic development, through improved commercial links, are priorities for FedNor. In view of its declining population, northern Ontario cannot hope to see its businesses grow without expanding into markets outside the region.

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FedNor therefore created a trade expert position in Northern Ontario whose exclusive job is to help SMEs get into new markets. Similarly, FedNor, in co-operation with the Department of Foreign Affairs and International Trade, has just become involved in a training program for trade commissioners.

Trade commissioners are federal, provincial or municipal employees who work in economic development and who will offer advice to businesses in their community that are considering exporting.

Last month, 20 candidates completed the training program in Northeastern Ontario, and another group of 20 trade commissioners will take the training in November. The objective of the program is to have 100 new exporters in Northern Ontario by the year 2000.

In order to help businesses in this region develop their export capacity, FedNor is involved in raising the awareness of suppliers and offering them development activities. For example, there are workshops on subjects such as electronic trade and government procurement contracting.

These activities will focus particularly on developing aboriginal suppliers and will help them gain access to government contracts.

[English]

Access to market includes, obviously, exports as well as tourism. As I mentioned earlier, the tourism sector in northern Ontario is done on a sectoral basis. It is very significant, contributing over $600 million annually to the region's economy and employing 4,000 people in northern Ontario.

FedNor provides financial support for broad-based regional initiatives that serve to strengthen the tourism industry. Support is available for cooperative marketing initiatives, specialty tourism package development, tourism skills development and centre-specific economic research and analysis. I wish I could give you some examples of that success; however, the program was just announced last week.

Finally, I would just like to conclude by saying that the challenges facing the people of northern Ontario are not dissimilar to those faced elsewhere across rural and northern Canada. Nonetheless, the specific circumstances are unique, as is the culture and the way of doing business.

Solutions may differ. FedNor is working closely with local stakeholders to develop mechanisms, policies and solutions that reflect their priorities. FedNor is enabling northerners to take the lead role in their own economic renewal. It is assisting northern business people by ensuring their voice is heard by government policy and decision-makers. Finally, it is helping build more self-reliant communities, where people can live, work and prosper.

That concludes my opening statement.

The Chairman: Thank you very much.

Mr. Asselin.

[Translation]

Mr. Asselin: First of all, Ms Paquette, your name is very easy for me to pronounce. There are a lot of Paquettes in Quebec.

I must start by congratulating you, Ms Paquette, because FedNor sent someone to the Standing Committee on Natural Resources today who can speak both official languages, French and English.

I can assure you that your brief, which I've just received, will be read, at least the part you wrote in French. This week I received this whole pile of documents. Yours was the only one in both languages. However, I can tell you that we met with some very large companies with a great deal of capital, but they did not take the time or trouble to invest the money required to get their briefs translated and present them to the committee in both official languages. So I congratulate you on doing this.

That said, I have difficulty believing that the Bell program will probably not be upgraded to a large extent until 1998. It is hard to believe that in 1996, a company does not even have access to a private telephone line.

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That's hard to believe, because today telecommunications infrastructure is important for economic development, for industrial growth and for helping businesses become known and reach the markets.

The information highway is important as well. For example, if you have a client or if you want to be a client of a large firm, you must publicize your products very quickly. I have trouble believing that a company does not have access to a private telephone line and therefore is not even be able to have a fax machine. That becomes a problem for the growth of the industry.

The federal government is asking aboriginal communities to create their own jobs, to take charge of themselves and go forward. But, if we do not give them the necessary tools in the North, and if aboriginal communities do not have access to communications services and equipment, they don't have the tools required in order to work.

The federal government must apply pressure on telecommunications companies such as Bell, to supply equipment to people in Northern Ontario and the rest of Canada so that they can get the communications services they need in order to expand their businesses.

Is the lack of communications services in Northern Ontario really a problem?

Ms Paquette: You are quite right. We do hope that the aboriginal community will go forward, but it must have the necessary tools. There are no telecommunications tools in those regions at the moment, regardless of what federal or provincial politicians often say. I know that at the present time, the heritage fund is a major priority for the province of Ontario - where I use to work.

So we are going to continue to apply pressure on the provincial government and Bell Canada to ensure that this is a priority. The announcement was made in the North, and the following week, two meetings were held in Northeastern Ontario, and another in the Northwest. There will be another meeting next week.

Mr. Asselin: The 21st century is almost here. We are no longer living in the 1950s. At that time, it was not unusual to have three people on the same telephone line. We had that type of service in Quebec with Quebec Telephone, even in the most remote areas.

Ms Paquette: There are no party lines in Quebec anymore?

Mr. Asselin: No.

[English]

The Chairman: Mr. Wood.

Mr. Wood: Thank you.

I'd like to know just how important it is to lever private sector funds by developing some alternative government programs through the branches of private financial institutions. I know that's a priority of yours.

Ms Paquette: I think the Hon. Minister Irwin was quite outspoken this week about the importance of banks considering small business a priority. They are the job generators of the future. I think we need to continue to work very hard with both the banking community and business to see what else we can do to increase the access to capital. BDC is a good beginning, but I think a lot more needs to be done.

Mr. Wood: I know your organization is involved with the Royal Bank and may be looking at caisse populaires for the French investment. How have they worked out? It's kind of in the embryo stage and they're just starting to get their feet wet, but have there been some success stories?

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Ms Paquette: It's really too soon to say. I wish I could give you examples of success stories today. We have eleven agreements with the BDC, so we're anxious to see how these businesses will thrive, and we'll follow their success. The arrangement,

[Translation]

the agreement with the Caisses populaires

[English]

is, again, just in the embryonic stages, but I think the message there is one about trying to find the right tools that work for the communities. You're taking the whole northern Ontario community and within that community, whether it be the aboriginals or the francophones, you're determining what they need in order to assist them in accessing capital. So it's still at the discussion stage, but I would hope that we will have something in six months, if not less than that.

Mr. Wood: You mentioned Minister Irwin. I know my colleague Mr. Asselin mentioned aboriginal people, too. What are some of the impediments that aboriginal people run into in trying to access sufficient quantities of capital for investment purposes? Is there any way we can get through some of the shortcomings? If it's possible, how can they be done away with?

Ms Paquette: I think we're off to a relatively good start. Part of what we're trying to do is get the aboriginal working group that I mentioned earlier to at least meet the key players, both in government and in the private sector. Last week in the Soo we had BDC present, we had Bell Canada there, and there was another corporation there but I can't remember who it was. They feel they're not connected with the key players. That's one of the fundamental problems.

The next one is the access. To some extent it's showing them how to do this, how to access capital. As I mentioned earlier, there is also the whole issue of repayability that is being discussed right now with the aboriginal community. That's probably at the top of the list.

Mr. Wood: Thank you.

The Chairman: Mr. Serré.

[Translation]

Mr. Serré: Welcome to the Standing Committee on Natural Resources, Ms Paquette. We have been trying to get in touch with you for several months, and because of a mistake on my part, we have not been able to get together. I am really pleased to meet you today.

I would like to join with my colleague from the Bloc Québécois in congratulating you on your very fine brief, not only because it in both languages, but also because of its very good content. All documents produced by FedNor or by Human Resources Ontario are bilingual, in accordance with the Act. Consequently, all FedNor documents are published in the country's two official languages.

Mr. Wood asked some of the questions I was planning to ask, but you gave only a partial answer to a specific question I planned to ask. The FedNor program has done a very good job of identifying the problems facing not only Northern Ontario, but also all rural areas in Canada. The problems you mentioned here - access to capital, communications and international markets - are points that have been raised by a number of witnesses at our hearings.

The question may be a little unfair, given that you were appointed to head FedNor only two months ago. However, I would like you to give us a more detailed explanation about the operation of the partnership with the Royal Bank, the Business Development Bank of Canada and eventually, I hope, the Mouvement des Caisses populaires. The objective is to increase the amount of capital available to small businesses. I think my colleagues would find this interesting.

Ms Paquette: In the past, small and medium-sized businesses came directly to our office to talk about their projects. We could offer them a non-refundable contribution of $100,000. If the contribution were greater than $100,000, the company had to pay it back, but no interest was charged. Subsequently, we approached the Royal Bank and entered into an agreement with it for$3 million for the next three years. This is for a very specific technological market.

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Clients will approach the Royal Bank directly with their projects in order to get a loan. If the Bank thinks that everything is in order, it will lend the company the money. We invested some money to encourage these businesses, especially since the risk in these cases is higher than in others. In the case of the BDC, the service is open to any project. In this case as well, small and medium-size businesses would approach the Bank directly with their projects and with the information required in order to obtain a loan.

So this is a loan. This is a reserve, but it is not a loan guarantee. It is a loan-loss reserve. This is the source of our clients' confusion. Many of them think that the federal government guarantees the loans. That is not so. This is a reserve, a second reserve. So it is up to the Bank to guarantee its loans.

Mr. Serré: Will this encourage banks to lend money? According to the testimony we've heard so far, that is the real problem. We are somewhat disappointed in the major banks, because as soon as there is the slightest risk - and they think, incorrectly, that the risk is greater in rural areas - banks automatically say no. That is why companies have so much trouble obtaining capital. Without the guarantees offered by FedNor or Industry Canada, will this program encourage banks to provide high-risk loans?

Ms Paquette: That's what we're hoping. Those agreements were only signed six months ago. It remains to be seen. I met the vice-president of the BDBC responsible for the North, to see if this would work. It seems there are many applications, but perhaps not enough approvals. The files need to be checked and worked on. Eleven loans have already been a success.

Mr. Serré: Not so long ago, I met the northern Ontario representatives of two major banks. They were lobbying at my office because I had made comments in the House of Commons on a few occasions and because I was not satisfied with the service they were providing in the region. I challenged them to tell us what amount of money they collected in northern Ontario in terms of guaranteed deposits, savings plans, etc., and what proportion of that amount was reinvested in loans in northern Ontario. I was told I would get those figures. But apparently, those figures are confidential. I know very well why they don't want to give us those figures. We're well aware that a large part of that money is loaned to the Reichmanns and huge corporations.

That brings me to a more general question. I'll be a bit harsh and I don't want you to take this personally. As I said, you've only been there for two months. I think the problems have been identified. Certain programs seem to solve to these problems.

We talked about value-added. I've been hearing that term for 20 years. I know it may be too early in your mandate, and in that of the new FedNor, but FedNor has existed for several years now. As members of Parliament for Ontario, we wanted to make changes to FedNor and give it a new direction because frankly, when I was elected, I was totally dissatisfied with the results that we had obtained with FedNor.

With these new programs, we may have a bit more success. Could you tell us quickly what kinds of results you are expecting from these programs?

Ms Paquette: Before I answer that question, I'd like to make a comment.

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Since you've had a conflict with the representatives of two major banks, you may be interested to know that before I came here, I called my office to find out the number of loans granted in northern Ontario under the Small Business Loans Act. I was not able to obtain the information at that time, but it will be provided to me later. That might be an interesting point of information for the committee.

Has the BDBC appeared before your committee, Mr. Chairman?

[English]

Has BDC come to speak to your group?

The Chairman: The business development bank?

Ms Paquette: Yes.

The Chairman: Not in front of this committee. They testified in front of the industry committee.

Excuse me, we've also had them in front of this committee as well.

[Translation]

Ms Paquette: Benoît, today I tried to give you a better idea of FedNor's priorities. We launched our programs two weeks ago and we are exerting pressure regarding telecommunications, asMr. Asselin said. We have a lot of work to do. FedNor has been in existence for 10 years. As a matter of fact, we are celebrating our tenth anniversary this year, but we do things very differently today.

[English]

The Chairman: Mrs. Cowling.

Mrs. Cowling: Thank you, Mr. Chairman.

Thank you for your informative presentation. I want to come back to a concern we have heard from a number of witnesses, and that is the depopulation of rural Canada and the number of young people who are leaving rural areas of this country. Do you have some thoughts on how we overcome that? It appears that not only is rural Canada a high-risk factor for accessing capital, but it's also very difficult for young people to access capital. Could you respond to that?

Ms Paquette: It's something that I have experienced. I'm from northern Ontario. I left after I graduated, moved to Toronto for ten years and decided I couldn't do this in northern Ontario. There were no jobs in my profession.

What can we do to keep our young people and also allow them to grow? You don't want to keep them and have them find themselves in dead-end situations, because then you haven't done anybody any favours, particularly young people.

I think we have to address some of our infrastructure problems. The telecommunications infrastructure problem in northern Ontario is probably the single biggest issue. If you don't solve the connectivity problems, how on earth can you begin to appreciate the programs? How can you, as a small business...? You can't even get a fax machine.

Having said that, you also have to have the necessary social infrastructure in many of our rural communities, whether that be hospitals or schools. Lord knows, there's not a lot going on there on the provincial level. That's going to influence where young people are going to choose to live.

I think we have to encourage things like what in Thunder Bay they are calling a techno-park. This is just in its embryonic stages and we're discussing it with them. I'm meeting with them next week when I'm in Thunder Bay. It's a way to get business graduates working with other businesses in trying to bring them together so they can create a new thing within our own environment and not let them graduate and leave.

At Cambrian College they have a program called NORCAT. They're building prototypes. Again, it's high risk, but if it works.... If you've got a rotary bit that you could use in northern Ontario, but if we could build the prototype and produce it here.... You need to do that in northern Ontario. It's allowing the infrastructure, whether the telecommunications infrastructure, hospital, or R and D infrastructure necessary to keep people.... You have to keep them happy, but you also have to keep the grey matter going.

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I think research and development would be a good way to go. We could build those - we talked a lot about those centres of excellence. Why can't we?

In Sudbury the health area has grown tremendously. They're doing industrial research into cancer and breast cancer, because the incidence is much higher in northern Ontario.

That kind of thing will not only attract professionals, but it will keep our young people. I think it's important to support them, particularly through student programs, so that when they are at school, whether that be college or university, they can see there are things they can do in northern Ontario to contribute.

Any program, whether federal or provincial, that we can do to keep our youths employed when they are in school is a step in the right direction. Also, giving them the tools, so that if they decide to.... Many of them realize they are going to be self-employed. A job is a job, and that's entrepreneurship in the north.

Our businesses are small - less than five people on average. My colleagues in Ottawa think 250 people, but no, we're five. But that's okay. Bigger is not always better.

I think it's a number of things, and it's a priority for people like you and me.

The Chairman: I have a couple of quick questions before we close off here.

The Government of Ontario recently announced the recapitalization or release of funds in their Northern Ontario Heritage Fund. Are there active discussions between FedNor and the Province of Ontario for joint delivery of Northern Heritage and FedNor dollars?

Ms Paquette: Yes, and I'll go back to the telecommunications side.

I have talked to some of the board members, and I'm actually meeting with one of them on Monday to discuss this. I spoke with Minister Hodgson, the Minister of Northern Development and Mines, last Monday in Sudbury. We will be talking again so that there will at least be an understanding of what they and we are doing, so we can make sure the dollars are invested in northern Ontario, not just spent. So on that side there is....

On the tourism side, we understand a substantial amount of money - like $85 million - will be allocated to northern Ontario in tourism. We will work with them so that if they're doing the actual infrastructure in northern Ontario.... At FedNor we have roughly $3.7 million parked for tourism, so we can make sure we're complementing those same activities.

The Chairman: My second point fills in a comment that my colleagues made. I had a little bit of concern with one of your responses, and it had to do with the access to capital.

You made the point - validly, I think - that the FedNor arrangement with the business development bank and the Royal Bank is not a loan guarantee, it's the establishment of a loan-loss reserve. I think everybody understands that.

I'm very concerned about downplaying what that could mean. The purpose behind it is that both of those institutions, and any future institutions you may enter into agreements with, will move up the risk curve in providing capital to small business people because they have their loan-loss reserve. If they're normally willing to accept a 1.5% loan-loss record and that gives them a certain risk profile on which they're willing to lend, if FedNor establishes a five point loan-loss reserve so that they can now take a 6.5% loss and still only pay 1.5% out of their own pocket - which in essence is what's happening - then the loan risk profile of their client should move up. In other words, there should be people getting loans, with this loan-loss pool established, who would not have gotten them without it.

I know you've only made eleven deals so far, but how are you as an agency going to ensure that the risk profile of the deals being made by those partners has expanded?

Ms Paquette: I personally have asked the vice-president how we are going to have this discussion and come to some agreement. I've gone back to the agreement that was written. It wasn't in there, and it should have been.

I hear what you're saying, Mr. Mitchell, and I concur with you. We will try to address that. That's why I asked earlier if you had BDC here. Perhaps they could answer that question better than I could. I know FedNor has a responsibility to the businesses, but clearly we will be doing business with the BDC as our banking partner. Defining what that risk profile is I think needs to be handled as well.

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The Chairman: I assure you, I will in fact ask BDC that very question. The regional development agencies that operate in all of rural Canada, with the exception of southern Ontario rural areas, including Muskoka, which.... One of the things I don't share with my colleagues is that my riding is totally covered by a regional development agency. That's a bone to pick with the Minister of Industry, not with you.

It is essential, for instance, on access to capital and as the technological issues develop, that we see the effectiveness of the investment we're making in the regional development agencies. I think you made this distinction very well when you said you don't want to see the money spent in northern Ontario; you want to see it invested in northern Ontario.

I think that's the same thing for FORD-Q, for western diversification and now ACOA as well. It's absolutely essential that we see the results of our investment in those areas.

Thank you very much for braving the weather. I know it's a journey. One of the challenges of rural Canada is early-season snowstorms, although as Mr. West told us earlier, it harbours the beginning of the snowmobile season.

Thank you very much. I appreciate your coming.

Ms Paquette: It was my pleasure. Merci beaucoup.

The Chairman: I'd like now to call our next witness, Mr. Greg Smith, vice-president and general manager of Panolam Industries.

Thank you very much, Mr. Smith, for being here. I'd ask you to make an opening comment and then we'll turn it over to members for questions.

Mr. Greg Smith (Vice-President and General Manager, Panolam Industries): Thank you very much for the invitation to come this afternoon. I should forewarn the committee, though, that when I had the call to come here this afternoon I was three days in the office. I'm new to the industry.

As well, Panolam itself is a brand-new company. We've been Panolam Industries since only June 17 of this year, when it became a buyout situation from the Domtar group. Today we're led by a private group of investors from San Francisco.

To give some background, I thought I would talk about the history of Panolam and what we represent in the area. Panolam has been a former division of Domtar. It's been here for 20 years. Today it represents about $110 million in sales. We've had double-digit growth in our industry for a 20-year period. That growth is currently accelerating as our exports are increasing, predominantly to the northeastern United States.

Panolam manufactures a composite wood product. ``Composite'' means we take sawdust and woodchips and apply resin and melamine crystals to manufacture surface coating to be utilized in the kitchen and bath industry for panels and in decorative cabinet manufacturing, etc. As such, we are more competitive than traditional wood-based products for manufacturing these various components. In terms of our cost competitiveness, we've been able to sustain this ongoing growth.

Five years ago, 95% of our product was sold here in Canada and 5% was exported to the United States. Today, about 45% is in Canada, 55% to the United States. This trend will continue. Our growth rate has been accelerating as more and more of these cabinet manufacturers understand the appeal of our product and are substituting it for direct wood materials. Therefore, it's a question of gaining further market access.

What's interesting to note, though, is that while our industry takes pleasure in the fact that we have a weaker Canadian dollar to the U.S., the industry is not built upon that fact. We have a product line that is naturally hedged - that is, we import raw materials in resins and papers, which more than offsets the export portion. So if there was a significant change in the exchange rate, it would not be detrimental, or would not wipe out our industry.

We employ a little over 250 employees here in Huntsville. They are very well paid in this industry. Our average hourly rates are $17 an hour for a production employee. Skilled maintenance employees receive $20 per hour. We're a non-union facility. We have very good benefits.

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Again, this has been sustainable through the fact that the business has been able to competitively grow and improve both its profitability and its ongoing future growth for new capital investment.

We buy from woodlots in a 250-mile radius, on average. Obviously, transportation is a key factor there, but more important is the transportation of our finished product. It's very heavy material as it's transported out of here. Rail is of significant concern to us.

We had a scare last year when we were led to believe we were going to lose rail service because of the low volume of usage from this area. That would be very detrimental to our export opportunity. As you know, when you cross the border, the road restrictions on the trucks outside of Michigan are probably half what they are here in Canada. As a result of that, transportation costs, already a significant factor, would be that much greater. Again, it would reduce the trading area in which we would be able to competitively export our product.

Some of the opportunities we see are for further opportunities for recycling of both building construction material and wood pallets used in other industries' transportation.

A couple of the pilot projects under way we are very supportive of, and would very much look to the government to support by promoting, as they do already in recycling as a generic statement. Our industry, along with many of our other particle board manufacturers, etc., would benefit from this. It would create new jobs. These jobs typically could be in a medium- to high-skill range if these factories were automated and applied the most current technology, as we ourselves do.

We are very highly automated and use very high technology. It's not a standard wood mill, block-type application. Ours is very much process- and capital-intensive. We announced this past week that we're completing the installation of a $6 million new press. Again, it's PLC- and microcomputer-controlled, for which we require a technician-level employee.

Human resource development in our industry, in our particular application, is best supported through community college-type programs. Individuals from technician/technologist programs are typically the types we prefer to hire. We're not that far from the city, if you like, or the Toronto region, that we have had great difficulty in hiring candidates, but the ability for ongoing upgrading of skills and education is always a concern, that it be available to us, as an outpost, rather than people having to drive several hours for evening classes, etc. It's something we're always looking to our employees to do - keep their skills current. The microprocess and technology are changing, and we like them to be current.

Finally, the rural development approach should place a little higher emphasis on the value-added opportunities rather than just natural resources as an export opportunity. Again, our experience is probably a good example of that. If you're able to get further into the integrated value-added chain, the ability to export that product and have sustainability in the industry is critical. That's what Panolam had done through its Domtar years, and that's what's giving us the sustainable growth today.

If it was based solely on exchange rates and the accessibility of raw materials from the woodlot locally, I believe it would be a short-lived strategy. I don't think it would warrant considerable tax benefit as a sustainable industry as a whole.

That gives you an overview of what Panolam is all about and what we're doing today.

The Chairman: Thank you, Mr. Smith.

Mr. Asselin.

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[Translation]

Mr. Asselin: You're involved in forestry and that leads me to ask you a few questions. Since forestry is essential for word processing, do you have quotas? If limits are imposed on these forestry quotas, your processing quotas are also limited.

In the same vein, do you also have export quotas? If you don't export, is the demand sufficient to anticipate the expansion of your business in the near future, which may create additional jobs?

Lastly, do you have trouble finding qualified staff in this region?

[English]

Mr. Smith: To my knowledge, we do not have limitations on the woodlot availability; it's purely economics.

As I have said, we are drawing from woodlots in about a 250-mile radius. It's a question of whether we buy wood at a reasonable price to be able to accommodate the extra shipping costs if it's coming from a region that would be further away. That's usually the determining factor.

At this time, our growth is not limited because of that availability, although there's no doubt it is in tight supply. There are a lot of trucks amongst our competition and ourselves criss-crossing each other on the road. As a newcomer to this industry, I'm not sure there may not be better ways of determining how to optimize the availability of this raw material. But at this point it's not limiting our growth.

Again, there is no limit on our ability to export. What limits our ability to export is the region in which we can economically manufacture and transport a product. Transportation is a significant cost, as we do go south of the border.

Today we go down as far as Virginia. So we're covering New York City, Boston, the northeastern seaboard. We do that quite effectively. The other competitors from the United States are in a region that.... You know, this makes us competitive in that zone as we add the transportation costs. To go much further, we would be competing against other American mills that would have a cost advantage due to transportation. As I indicated, this is where the difference in the exchange rate could be a factor. Today's exchange rate takes us as far as Virginia. If the exchange rate changed by 10%, then we may drop back 100 miles or so in our trading radius.

We also import a lot of raw materials in the resins and papers, so the exchange rate opportunity just doesn't drive the business. It would just be a factor in the transportation portion. It's not that significant.

On the qualified personnel issue, as I said, we have not had a significant problem at this point. Probably one of the reasons is that we do pay a very good wage and benefit package. Therefore, at the community colleges in the region we have a long list of applications each year from people in the area - again, it was addressed in the earlier presentation - who would like to stay in the area.

There's no doubt about it, the majority - from what I've seen, I would say 75% - who are working at our company here in Huntsville are from rural Ontario. A lot of these have gone to community colleges, had their education, and then returned here to this type of industry. So it's something they very much like to do.

Also, as a newcomer here to Huntsville, I have heard many situations where sons and daughters of these employees have not been able to find employment and therefore had to move toward these centres.

[Translation]

Mr. Asselin: You talked about paying good wages, but is there pay equity for women here, equal pay for equal work. Do men and women receive similar pay?

[English]

Mr. Smith: We have a policy of equal pay for equal tasks or equal skill. We use an evaluation system where we assess the value of a job - be it male or female - and we assign it a point value. Our pay is based on that strategy.

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The Chairman: Mrs. Cowling.

Mrs. Cowling: Thank you, Mr. Chairman. I'm going to follow up some of the questions my colleague has asked.

Of the 250 employees, how many are women and how many would be young people, students?

Mr. Smith: My estimation is that of the 250, 30 would be female. Of the total 250, I would say that 150 would be under the age of 40.

Mrs. Cowling: You indicated that when you're looking for people for the job, you're looking for people from the community colleges. One of the things we have done quite successfully in the government is create a climate for economic growth and jobs. We have also helped to build strong partnership among all levels of government.

This leads me to my next question. When you indicated that you're looking for people from community colleges, I'm wondering if you've considered partnering with community colleges, where you would be involved with retraining, on-the-job training, that type of thing. Have you considered that? What would you think of that?

Mr. Smith: I think it would be a good idea. Again, I'm relatively new to this particular site. I am familiar with the fact that we do have certain programs with community colleges where we're jointly developing some new technologies.

We see market opportunities that require the development of certain techniques. We're working with community colleges in this specific case, on developing that technique, starting it up as an actual profit-and-loss centre. We're supplying all the raw materials and our technology on the best approach to it.

At the community college they're working out all the methodology and the processes. The intent is that they will actually supply us. This will actually become a profit centre for that particular community college. They will use it in their training and development of new students coming through there. This will give them a skill that is really driven towards....

This particular process is such that it would lend itself very nicely to very small woodshop-type applications. That would mean that the entrepreneurial types who want to go out and start this after school would have that opportunity.

For us it represents an opportunity to exchange some technology and develop this particular process, which we don't think is applicable in a large mill. We need that ability nearby. We're working with the community college on that application.

We do partner with some universities, with the University of B.C., the University of Toronto, on the engineering programs, on the wood sciences, etc. In my six weeks, I have not seen the same level of partnering in the community college for wood technologists, for example. But I believe it would be a good idea. It's something I will be be asking our HR department about in the future.

I have seen a fair amount on the university side, the Bachelor of Science side.

Mrs. Cowling: Would you recommend to this committee that we tailor programs specifically for rural regions of this country in fact to enhance the possibilities of those partnerships working out?

Mr. Smith: Again, this probably has more of a personal slant to it. I would encourage the committee to look at opportunities similar to the one I just defined. It should be tied to a sustainable industry, not just based on low-cost natural resources or the exchange rate.

If there's sustainable job security in developing an add-on-type, value-added process to the natural resource industry, I would strongly encourage that. I think that would be the right thing to do. It would be wrong to look at what could be determined a short-term opportunity if our exchange rate took a sudden change, if it was there because we had a 35% exchange rate.

I think that would be the right thing to do. Look for these value-added opportunities, how we can get more of the processing of products before we export these, or ship them, even within Canada.

Mrs. Cowling: Thank you.

The Chairman: Thank you, Marlene.

Mr. Smith, your type of business represents one of the major thrusts of our examination. That is the existence of value-adding of our natural resources in a part of rural Canada as a means of diversifying and having the economy grow. Your organization has just made, and is continuing to make, a pretty substantial investment in this area.

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I wonder if you could maybe just share with the committee the factors that led your organization to make that investment, and how we can replicate that set of circumstances in other parts of rural Canada.

Mr. Smith: Obviously the factors that were utilized in determining that Huntsville was the right location, let's say, to make this new capital investment.... We have two other companies, which are both in the United States, one on the west coast, one in the southern region, so that we can cover all the geography of the U.S. market.

When we did our own internal assessment for that investment, we analysed - and it comes back to the point I was making earlier - that we have the right opportunity for raw materials in our geographic location, transportation being a significant factor. We have the right geographical location; we have the opportunity to utilize the right quantity of raw materials coming from the United States, which provides a natural hedge against the exchange rate fluctuation.

So when you take those factors and you look at the opportunity for margins, which obviously is the return on the investment the shareholder is looking at, the combination was such that we have good access to the northeastern U.S. market, which is significant in terms of its volume opportunity.

As I said, five years ago 5% of our business was in the United States; today it's 55%, and I suspect it'll follow the normal 10:1 rule. That's what the investors also saw. They saw that by putting this capacity in an existing facility, where you already have a lot of the skills, and demonstrating the results for the last number of years.... We have had the right skilled labour to be able to command and operate our manufacturing processes. We were going to be able to leverage this by adding it on, by further liquidating overhead costs on a larger volume within that same facility, and providing an export opportunity to that northeastern U.S. market.

So it was really a return on investment versus going out and starting a green-filled site, if you like, in the northeastern U.S. The majority shareholders of our new corporation are Americans. They drew the conclusion, as we did, that this was the right place for that investment.

Again, they've always had the concern about exchange rates. I keep coming back to that because it's so critical. I've heard too many horror stories of people building businesses on that. Again, investors have a serious concern about that.

The Chairman: If I was to summarize what you've said, from the perspective of recommendations from this committee, one would be to make sure, as a government, that we provide the transportation infrastructure. Second, provide the investment in training and education to ensure there is a skilled workforce.

Mr. Smith: That's correct. Those are the critical factors; they certainly are in our case. The transportation factor is the one that gives us more concern. I think it would be different the further north we went, but certainly for us, transportation is a significant factor. People in our industry were very concerned last year when they heard that we might be losing rail service here in Huntsville, for example. I'm sure as you go further north, that concern would be greater.

The Chairman: Mr. Serré, do you have a question?

Mr. Serré: Thank you, Mr. Chairman. As a matter of fact, I have two questions. You asked the second one for me and he just gave the answer, so that's okay.

In our hearing in the past couple of days, I think we've talked a lot...but I've been hearing this about value-added products for twenty years. Your company is generally a good example of how we can add value to our natural resources.

In the same line of questioning as that of the chairman, I was just wondering, when you decided to set up shop in Huntsville, did you get any grants or financial assistance from any level of government? Did you get assistance in terms of research and development or labour training, or did you go ahead and do it all on your own?

Mr. Smith: Unfortunately, I can't answer that. Having been there six weeks - and the industry has been there twenty years - I don't know. I would suspect there was, but I honestly can't say. Again, it was a division of a much larger conglomerate. Whether or not they had that funding, I'm not sure.

Mr. Serré: Would you undertake to find that information for us and send it to the committee?

Mr. Smith: Sure.

Mr. Serré: I think it's crucial for our committee, because there is a philosophical debate as to whether a government should get involved in helping small entrepreneurs, especially in the north, in rural areas. It would help us if you could come up with stats or some information to say, well, this company's still there because of R and D money, or whatever, and it's not happening there because this was not available.

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Again, in the same line of questioning, if you were to make two specific recommendations to, let's say, help your company with a policy change for any federal department - in the environment, transportation, or labour training areas - to enable you to expand your business and create more jobs in rural Canada, what would those two recommendations be?

Mr. Smith: The first would be in the transportation area. The infrastructure needs to be there to support rural companies as a whole. The speaker who made a presentation before me indicated that the deterioration of that infrastructure is of concern.

We know it's difficult to get American truckers just to come from Toronto to Huntsville. They don't want to haul that short distance empty when they're going back to the U.S., and the fact is that where the roads are in tough shape, it's even worse.

So we're in a much better position than those much further north; nevertheless, the transportation and the availability of rail transportation in the future would be of serious concern. That would be the first.

The second would be to focus the development of resources - and I'm talking about monetary resources - that are going to be available to that industry for those proposals that may come forward. Those proposals focus on the value-added portion, rather than just the harvesting - I call that a ``harvestrategy'' - of the natural resource itself.

Mr. Serré: Does your company do a lot of R and D?

Mr. Smith: We do a lot of R and D with respect to the application of a product and the material that's used on the surface, the surface finishing, because that's how we differentiate ourselves in the marketplace.

As I mentioned, we have three facilities, Huntsville being the largest, where we're vertically integrated. We manufacture particle board. There are a lot of particle board manufacturers in North America, as you're aware. The differentiation for Panolam is the fact that we have a melamine surface, which is different from a lot of the other surface applications. So that's where we tend to focus our research development moneys.

I wouldn't say we're high compared to.... I've come out of the electrical industry, and we're not showing a high ratio of reinvestment dollars; it would be under 5%.

Mr. Serré: You'd like to see more government money in R and D?

Mr. Smith: I think government spending on R and D at the natural resource level probably would be back at the ongoing development of the woodlot. Again, as a newcomer, I've heard of issues that would be of concern, that some of the policies we've developed - and this isn't so much in research but just an application of policy. There is a requirement to take a certain percentage of hardwood in proportion to the ratio of the softwood you're taking.

I'm not sure that's the right strategy to take to sustain the industry. If it's a question of the fact that we need to replant and reforest with a good grade of hardwood, I think that should be a separate entity unto itself, rather than a policy that says you need to take this ratio.

On the research side, I don't know. Again, I think that if the universities with which we're doing our work on the research side, etc., have the appropriate funding in the natural resource sector.... That seems to have worked well for us, and it also worked for me in the electrical industry. I guess I'm not a strong believer in a lot of free government money, if you like, to be able to do that.

The industry has to be able to sustain itself, the visionaries within those industries have to know where they're going, and they have to be making the proper investments to have it. I don't think the government is going to create that vision within a company by itself. They have to have it, and they have to believe in it.

Mr. Serré: Thank you.

The Chairman: Thank you very much, Mr. Smith.

I really enjoyed your testimony, and I know the other committee members did. It addressed one of the key issues of this committee, and that's the value-added in rural Canada. We appreciate you adding your insights to that.

Also, as the local member of Parliament, I'd like to express my thanks on behalf of all my constituents for the investment your company is making in our area. Thank you very much.

Mr. Smith: It's a pleasure, and thank you. I will get the information for Mr. Serré and I'll turn it over to the committee.

The Chairman: Thank you very much.

I'd like now to call on our next witness, Ray Lacroix, from Bell Canada.

Mr. Lacroix, I'm sure your ears have been buzzing all day, as the committee and its witnesses have talked about telecommunications infrastructure.

Mr. Ray Lacroix (Deputy Director, Government Relations, Bell Canada): Yes. I was interested to hear the comments of Louise Paquette from FedNor. We have had a number of meetings with FedNor, and also with the Northern Ontario Heritage Fund people, so it was nice to hear some of the comments she made. We are working with them, by the way.

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Thank you very much, Mr. Chairman, for the opportunity to come and address the panel today. On behalf of Bell Canada, I would like to express my sincere appreciation for the opportunity to provide my company's views on the contribution telecommunications can make to bringing economic prosperity to rural Canada and enhancing the personal lives of its citizens.

I will begin my remarks by outlining the benefits of a modern telecommunications infrastructure. I will then describe the actions my company has taken to improve telecommunications services for customers located in rural communities, including specific examples of the advantages we will bring to them.

I will conclude by outlining future initiatives Bell Canada is undertaking, not only to improve service to current customers, but to extend telecommunications services to those people who today are essentially not served.

Bell Canada believes that a fully modern telecommunications infrastructure can enhance economic renewal in rural Canada and improve the quality of life for its citizens in several ways. First, telecommunications can make it attractive or viable, for businesses that might otherwise not consider a rural location, to locate in smaller centres as opposed to Toronto or Ottawa, thereby diversifying local economies.

Telecommunications can make distance and geography irrelevant, putting the world at the doorstep of the community, no matter where it is located. An example would be a customer of ours who offers Intranet service to customers in downtown Ottawa from his beef farm outside Kemptville, Ontario.

Telecommunications holds the promise of providing improved health care access for citizens who might otherwise have to travel long distances to obtain treatment from specialists.

Bell Canada is participating in a number of important technology tests in telemedicine, designed to enhance access to health care expertise for all, especially those living in remote or medically underserved regions. For example, pediatric psychologists from the Toronto sick kids hospital can now link to facilities in Parry Sound's local hospital to assist doctors with their treatment of young patients, without the costly trip to Toronto.

Specifically, access to telemedicine can provide improved access to specialists and real-time second opinions; accelerated diagnosis for patients in distant communities; reduced duplication of expensive diagnostic tests; extended reach of timely and specialized medical help; reduced stress for individuals and families living far from specialized medical care; cost savings from reduced demand on public medical transportation budgets; and an overall improvement in the quality of care available to everyone.

Access to the benefits of telemedicine and related services depends on a digital telecommunications network with the capacity to carry huge amounts of information, voice image and data. A fully modern telecommunications infrastructure offers access to the new educational resources through tele-education, a powerful teaching tool that allows teachers, students and parents to leap over the limitations of time and distance.

The classroom becomes the world, and the school is always open. An example is Collège des Grands Lacs, Ontario's first fully digital school. Students attending this French-language community college can attend the same class, with the same professor, at the same time, from five different sites around the province. The distance learning classes are fully interactive. Students and teachers can see and hear each other. They can also use two-way electronic blackboards to illustrate their lessons.

In Lanark, Ontario, which has one of the highest per capita subscription rates on the Internet, public and separate school boards will soon be able to use Bell technology solutions to share resources more efficiently, including working together to optimize the efficiency of bus routes.

On September 6 of this year, Bell took the first step towards bringing these promising applications to every customer we serve in Ontario and Quebec. In the process, we hope to make basic local service even more valuable to our residents and business customers in rural Canada, who depend on the telephone as a link to their customers, family and friends in other cities.

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Specifically, we have developed a plan to speed up the replacement of older telecommunications equipment with new, state-of-the-art technology, and have filed a plan with the Canadian Radio-television and Telecommunications Commission.

If approved, Bell will invest $180 million to extend modern, reliable telephone service to almost 500,000 customers in rural and medium-sized communities who do not enjoy the same level of service as customers who live and work in larger urban centres. For customers living in rural communities today, the network improvements would not only mean access to new applications, such as telemedicine and distance education, it would also provide significant improvements to the telephone service they use on a day-to-day basis.

Once modernization has been completed, these customers would enjoy a higher quality, more reliable telephone service; the ability to choose the services of other long distance providers without having to dial extra digits; access to more reliable 911 service where municipalities choose to provide it; faster, more reliable access to data services and the Internet to the service provider of their choice; and access to the Bell SmartTouch calling features such as call waiting, call display and call return.

Finally, technology improvements that Bell is proposing would also result in larger local calling areas for many more customers throughout Ontario and Quebec. In all, almost one million customers would benefit from service improvements in larger local calling areas by the end of 1997, or in mid-1998 in the case of rural communities in the far north. These are communities above the 52nd parallel.

If the proposal is approved, Bell will upgrade thirteen exchanges in the Parry Sound-Muskoka region to fully modern, digital telecommunications service, and seven communities will also have the expanded local calling areas. Just to name a few examples in this area, business and residential customers in Magnetawan, McKellar, Parry Sound and Port Carling will see significant improvements to their basic local telephone service by the end of the year.

In order to fund this accelerated modernization program, Bell has also asked the CRTC to endorse a new local service pricing plan for residential customers in medium and small communities. The new system would allow Bell to recover more of the costs associated with providing basic service to those customers, whose prices today are less than one-third to one-half of Bell's cost to provide service.

It would also provide more equity in the way customers are charged for telephone service, that is, customers would enjoy service levels similar to larger centres and would pay similar prices.

Today it costs Bell significantly more per customer to provide local service in areas that are less densely populated than it does to provide service in large urban areas. However, customers who live in the more remote areas pay the lowest monthly rates. Bell's rural service improvement proposal would see all customers in small and medium-sized communities paying the same price of $14.60 for single-line service and $10.75 for two- and four-party service.

If our proposal is approved, local prices for residential customers would increase from 45¢ to $4 a month, depending on what they pay today. Customers in Huntsville, for example, pay $12.40 per month for local service. If our proposal is approved, it would see a local price increase of $2.20 per month. Overall, across the board, the average price increase would be about $1.11 per month.

Bell has asked the CRTC to approve its proposal by November 29, 1996, and then the price changes would take effect on December 1 of this year.

While Bell believes this plan will help meet the demands of most of our customers in small and medium-sized communities, we know it will not meet them all. As a result, we are looking at a number of options that would allow us to improve our local services packages in other ways.

For example, Bell is studying technology solutions that could provide single-line service to customers in remote and rural areas who still have four-party service. Today these four-party customers in remote and rural areas must pay additional mileage charges to access single-line service or two-party service. In some cases, single-line service is not available at all, because of the high cost of providing it.

Finally, Bell is actively pursuing a number of new technology solutions to meet the needs of communities that, because of distance or geography, do not have access to traditional telephone service.

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In fact, on October 15 of this year, Bell began a two-month technical trial, in a partnership with TMI Communications, to determine if satellite technology is an appropriate solution to meet the needs of customers in remote areas. Satellite service may be better suited for remote communities because it provides access to digital communication services without having to install telephone poles, wires or cellular towers.

In all, 20 participants in the Parry Sound and Kenora regions in Ontario, and Lake Kenogami in Quebec, are testing these fixed satellite installations. Bell selected these communities because they represent a cross-section of different types of terrain and vegetations and angles to the satellite.

During this trial participants can make local and long distance calls to locations throughout Canada and the United States, and to other trial participants in their communities. Participants are also using optional features, offered by TMI Communications, such as call answer, call waiting, call forwarding and conference calling.

When the trial is over, we will be meeting with the participants to get their opinions on the service to find out if it is appropriate for the customers in their communities.

In addition to the six satellite trials, Bell is also looking at other alternatives to bring single-line service to all customers in rural areas and small towns.

This week Bell filed an application with Industry Canada asking for an experimental licence for fixed wireless telephone service. If approved, we hope to begin a trial with participants in Verona, Ontario and Thetford Mines, Quebec early next year.

We at Bell are very excited about this trial since it will help us determine if wireless technology is an appropriate solution to provide rural customers with any service or feature that is already available to customers in urban areas. Bell SmartTouch options and features, single-line service, and the convenience of touch-tone could be available to every customer, no matter where they live.

For business customers, wireless service could also mean access to business applications, such as Centrex and ISDN service. Local businesses could compete with their urban counterparts on an equal footing in terms of technology and speed.

Wireless service could also be a more cost-effective way for Bell to service its customers in rural and small communities, because it could be set up by building on Bell's existing powers and facilities. This new technology would be easier to maintain, because there is no need to run wires over long distances or difficult terrain. Our customers could also benefit from this flexibility, because we would be able to respond to their needs more quickly and efficiently.

In conclusion, over the past few months we at Bell have been listening to our customers, and it is with their input in mind that we have developed our plans to modernize telephone service, revise our pricing structure, and extend telephone service to regions where it is not available today.

Customers across Ontario and Quebec want to work from home, do their banking over the telephone, and surf the Internet in the way their urban counterparts do today. With all of today's technological advancements, geography should no longer be a barrier to the information highway and all it has to offer. A modern telephone network can make all of this possible for rural Canadians.

Once again, on behalf of Bell Canada, thank you for this opportunity.

The Chairman: Thank you very much.

Mr. Asselin.

[Translation]

Mr. Asselin: As the Chairman said, your ears must have been ringing while you were in the room. I hope your ears can take more. I have other things to tell you and other questions to ask you.

As I said earlier to Ms Paquette, I fail to understand that in 1996, there is not an adequate telecommunications service. What percentage of net profits does Bell need before it starts to invest in capital expenditures? Does Bell Canada start to invest in capital expenditures only after it has managed to make $2, $3 or $5 million in net profits?

I don't understand why in northern Ontario and other provinces where the same problem has been noted, people don't have private lines. I don't know if Bell also operates in Manitoba and Alberta. It's an indispensable tool for industry, for small and medium-sized businesses. In the far north, it's the same thing when we tell aboriginals that they have to create their own businesses and take charge of their affairs. Today, aboriginals want to integrate and develop small businesses. They often do subcontracting.

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I think that Bell should cooperate with various levels of government as soon as possible to help them develop industry in the regions. But this depends on Bell. In telecommunications today, the information highway is an essential tool. Because of competition, aboriginals cannot buy the necessary equipment because the lines are inadequate. Electronic mail is also a method of communication that people could use, but they don't have the necessary lines.

Communications are inadequate because of a lack of competition. Is there only Bell in this territory or are there other companies? If it's only Bell, that may be the problem. When there's competition, you can get the services you need. If there was competition, wouldn't Bell Canada sell its product before its competitor did?

You say that you will appear before the CRTC to obtain authorizations. When Bell Canada appears before the CRTC, it's usually to increase its rates, and never to say that it wants to improve client services or its equipment.

Are you going to invest in capital expenditures or finish ahead of schedule in some cases, even if you don't receive CRTC authorization to increase rates?

[English]

Mr. Lacroix: Bell Canada today has a modernization program in place. Unfortunately, it has been in place for a number of years. Currently, using the existing technologies we have today and the budgets we've established for infrastructure improvements in rural communities amounts to a plan that would see improvements take place over a ten-year period.

That's based on the fact that in Ontario and Quebec, which is our serving territory - we don't serve Manitoba - we spend in the order of $20 million to $25 million a year on infrastructure improvements in rural communities.

Unfortunately, we still have a number of locations in the provinces of Ontario and Quebec that are still substandard in terms of telecommunications services. Specifically, our switching equipment is on an analogue basis in many locations. In fact, in Ontario there are about 65 analogue switches still in existence. We are also addressing the need to improve other switching equipment that is medium-range, digital-type switching.

In terms of first nations, we recognize the need to address the service requirements for those customers who are primarily in the far north. These are customers.... In the case of Ontario, again - I'll be specific - there are 21 switching locations above the 52nd parallel. The proposal we're talking about here today, which we filed on September 6, 1996, addresses the need for service improvements for those customers in those 21 locations. Those 21 locations are primarily Indian reserves in northern and northwestern Ontario.

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On the quality of equipment, yes, you're absolutely right. Our quality of equipment in some of these locations is substandard, as I mentioned. It is substandard for a number of reasons. It is older technology.

We are also looking at this proposal to satisfy some of our own self-interest, in terms of being able to maintain that equipment more effectively, efficiently, and in a timely manner. We also want to ensure that we can provide our customers with reliable telephone service. In fact, in some cases we have not been able to provide the level of service that we have been able to provide in urban communities, in larger communities in Ontario and Quebec.

You mentioned competition. It's a good point, because competition is coming; it's here now. Long distance competition is very robust, primarily in Ontario, but in other parts of Canada at the same time. Right now Bell Canada is forecasting that by the end of this year we will have lost perhaps more than 30% of our long distance market in the provinces of Ontario and Quebec. By perhaps late next year or early 1998 there will be competition related to local service in some of the larger urban areas.

In terms of rural communities, I don't think that same type of competition will be provided over the short term. We have heard that they're using various technologies, the new personal communications service technologies, that competitors intend to concentrate on the large urban areas, because that's where the customers are. That's where the quick hit is going to take place, and therefore I think you'll see that market being addressed first from a local competition standpoint.

In terms of rolling out competition to rural communities, maybe with the advent of higher-grade radio systems, satellite and microwave combination systems, and perhaps wireless communications, there may be an opportunity to stimulate competition in rural communities. But at this point I don't believe you will see local competition in rural communities, perhaps for the next four or five years.

The Chairman: Mr. Serré.

Mr. Serré: Thank you very much, Mr. Chairman.

Thank you for being here, Mr. Lacroix. You must feel like Daniel in the lion's den. I think you're a very courageous man. I want to tell you from the outset that I'm not a big fan of Bell Canada, the monopoly that is exercised in this country for so many years. I think that northern Ontario has been badly serviced by Bell Canada.

When I look at your modernization schedule, the only reaction I have is that it's about time. Until about three weeks ago I intended to fight your rate increases at the CRTC, and to fight them tooth and nail. After a discussion with some of my colleagues, I might not do it, but I would like some kind of guarantee from you that the money raised through this rate increase will in effect all be spent to upgrade our communication system in northern Ontario.

As my colleague said, I think it's almost unbelievable. I have regions of my riding that.... Of course, some of it is by Northern Telephone, but the same problem exists with Northern Telephone and Bell. You have gone for huge profits, and you have neglected the remote areas of this country. I think you had a duty to do it, because you had a monopoly.

So my question is, can you offer us a guarantee that the rate increases will in effect all be spent on modernization in rural areas? In your business schedule are you working with other companies like Northern Telephone to synchronize the modernization in northern Ontario? In terms of satellite technology, when can we expect to see some development in that area, and what would the cost be compared to what we're paying now?

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Mr. Lacroix: Let me start off by making a comment in terms of costs for providing service. I'll use an average cost share just to give you some sense of what Bell's recovery is for basic local services across the board in the province of Ontario.

Right now, on an incremental basis, to provide our basic service it costs us about $27 per access line we have out in Ontario today. That's an average in downtown Toronto. It would probably cost us significantly less than that. In rural communities, specifically in northern Ontario, it would probably cost us double that in terms of providing a basic service.

So right now the average is $27. Probably the average for rural communities would be double that.

We are committed to providing upgrades to our infrastructure, modernization of our networks. As I mentioned, we do have that plan in place today. Unfortunately, it's a plan that is a prolonged plan, in terms of when we would have completed all our locations in the province of Ontario. It's currently set as a ten-year plan, with spending in the order of $20 million to $25 million on an annual basis.

There are still thirty independent telephone companies in the province of Ontario. Northern Telephone, which you mentioned, is certainly one of them. I must say that, by and large, the independent telephone companies have relatively modern switching networks. Some of their transport vehicles - these are the connections between the switching locations - are perhaps not as advanced as they would like.

But I can tell you that I understand the independent telephone companies are looking at our proposal very carefully, and I would expect that they would follow suit in terms of providing those same types and levels of services as Bell Canada will be providing to our customers.

Your last point was about satellite communications. As I mentioned, we've just embarked on a couple of what we call technology trials, in the province of Ontario and in Quebec, to determine whether satellite communications is a viable option for some of these customers who are in remote areas, where it would cost us exorbitant amounts of money to provide telephone service to these customers.

In fact, a trial is taking place here in the Muskoka area. I believe the trial date was October 15. For your information, I do have a short videotape. Actually it was a video that came off the local TV station here. I'll leave that with the committee, if they would like.

To address the satellite issue, there are a number of things that have to take place. There is a cost associated with the purchase of the equipment itself. I'm not talking about the satellite; I'm talking about the actual station equipment: the telephone, and the actual antenna for the satellite. I understand it's in the range of $5,000 to $6,000 for the purchase of that equipment.

In addition to that, there will be costs associated with the charge for usage, because most of the satellite communications are set up on a time basis. In other words, it's a measured time basis, much the same as what you would experience with cellular telephone.

There is an issue with quality of that service, because of the way the signal is transmitted. It's transmitted to a satellite that I believe is around 35,000 kilometres away from the earth. There is a marginal time delay in the transmission; there is a slight pause or gap in the conversation when one person stops talking and the other actually picks up the conversation. So there are some technology issues that have to be addressed.

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In terms of the speed of communication, the ability to transmit data and get connected to, say, the Internet over a satellite, it seems a little on the loose side. That's not good terminology, but it is slow. It doesn't have extensive band width at this point in time. It's still on the lower end of the data spectrum, able to deliver speeds at very marginal rates. I think now they've boosted it to about 4,800 bits per second, so it's still relatively slow compared with what you could provide over a land line facility.

Mr. Serré: Mr. Chairman, I would like to ask my question again. You have answered the other question, but this one has not been answered and it's very important for me. Can you guarantee us that 100% of the rate increase will go back for capital expenditure for rural Ontario?

Mr. Lacroix: Our expenditure for this proposal started off at $180 million. We have had some extensions on this plan. In fact, we will probably end up spending significantly more than that because we also plan to upgrade what I mentioned before, the medium-speed or medium-service digital switches, so that everyone in Ontario and Quebec will be on the same common digital switching platform. Our expenditures will probably escalate. This is not an official number, but we think it will escalate to the $200 million vicinity - all to be done since October 1, over the next 15 months.

In terms of a guarantee, I can tell you that the payback period for this particular capital investment is significantly less than we would normally expect. In other words, our company is looking at a much greater return on our investment for expenditures of this magnitude. We would recoup the cost over an extended period of time...the payback period, probably in the vicinity of five to six years.

In today's environment, especially with the local competition that's upon us now, I must tell you that we really wrestled with the situation, with what the best thing would be to do in spending, whether we would invest this amount of money at this point in time.

The Chairman: Mrs. Cowling.

Mrs. Cowling: I come from Manitoba and represent a rural riding there. Because I don't understand the whole communications network, would you clarify for me if there is in fact no connection at all between MTS and Bell Canada?

Mr. Lacroix: There is no connection. There is no ownership. We don't have equity in that company at all. There is an agreement that Stentor has in place - Stentor is an association of telephone companies across Canada - for how we would handle our traffic throughout Canada, in other words our long distance routes. If we want to have a customer in Ontario call British Columbia, obviously there will be a routing through Manitoba, and there is a sharing relationship for the revenues of that long distance call. But we have nothing invested per se in MTS.

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Mrs. Cowling: Then is there a sharing of technology, a sharing of satellite information?

Mr. Lacroix: There is a sharing of certain technologies. For example, we've introduced Bell Sympatico, an Internet service we provide to our customers to our Bell Global Solutions Group, which is a subsidiary of Bell Canada. We have entered into agreements with our Stentor partners to have them market Sympatico Canada-wide to provide local calling access to Bell Sympatico. So if you were to travel to Manitoba or British Columbia, you could actually dial a local number and get access to the Internet through Sympatico. There are those types of arrangements.

In terms of research and development, I am not sure what portion, if any, is contributed by MTS for R and D. That would be done through our sister company, Bell Northern Research, BNR. I'm a little unsure if you're thinking of any other direction in terms of investments here.

Mrs. Cowling: All of us around this table are very interested in the economic development of rural Canada. From what we have heard right across the west from a number of witnesses, I think one of the biggest issues is not being involved with the information technology out there. Rural communities seem to be left out of that very big picture.

I raise these questions because if there isn't a sharing of that kind of telecommunications information right across this country, where we build a network to connect people, I'm not sure how to address that from a federal government perspective. I'm not sure how we can link up those areas that are very remote and in fact are very beneficial to many urban dwellers and urban centres. We all know that if it were not for our natural resource sector, many urban centres simply would not survive.

Mr. Lacroix: In terms of rural economic development, we have been working with a number of stakeholders. In Bell Canada in the province of Ontario and a similar stakeholders' group in Quebec, we established a rural stakeholders' panel made up of a number of groups and associations in Ontario and Quebec. We have the Economic Developers Council of Ontario as a member of this panel in addition to the Ontario Federation of Agriculture, the Business Development Bank, the Northwestern Ontario Municipal Association, the Rural Ontario Municipalities Association, the Association of Municipalities of Ontario, the Chamber of Commerce. I believe we have a very good cross-section of representation from rural stakeholders interested in economic development in rural communities.

We have partnered with some of these rural communities. Lanark County is one we have done a lot of work with in establishing an integrated community network that utilizes our communications solutions to provide a whole myriad of different solutions to their communication needs. In fact, we have used the input from this rural stakeholders' panel to come up with this package I mentioned today that we filed with the CRTC on September 6. So they are involved in the process.

Our job is not done. We are now looking at how we can provide single-line service to every customer in Ontario and Quebec. We are again entering into discussions with our rural stakeholders and others to see if we can come up with some solutions as to how best to serve these customers.

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The satellite trial we mentioned, and specifically the fixed wireless trials that we are going to be looking at over the next little while, will go a long way toward addressing those types of concerns. It's still providing them with state-of-the-art telecommunications.

I understand your interest in terms of what's happening in other jurisdictions in Canada. Manitoba Telephone is aware of our proposal. A number of proposals have been filed throughout Canada. New Brunswick Telephone Company filed something in late July or early August, bringing a similar type of upgrades - single-party service - to their customers.

In terms of Bell Canada, we don't have any jurisdiction outside the provinces of Ontario and Quebec, so it's difficult to indicate that there are similar plans for some of these other locations, but I can say that locations like Nova Scotia and New Brunswick are looking at upgrading their infrastructure programs in an accelerated fashion.

Mrs. Cowling: Thank you.

The Chairman: Just before you go, Mr. Lacroix, and before we hear from Mr. Martin, I have a couple of quick questions for you.

On page 7 of your brief you list five basic components of your modernization plan, which I'm sure you're familiar with. I'm curious. You file at the CRTC and then make a $180 million investment. Does that mean every rural customer in Ontario and Quebec will benefit from those new services?

Mr. Lacroix: That is correct; that is the plan. Again, I'd like to state that our intention with this proposal is to provide common, basic telephone service to all our customers throughout the provinces of Ontario and Quebec. The items you see listed here - it's our intention to provide these options to all of our customers, yes.

The Chairman: By the end of 1998?

Mr. Lacroix: By the end of 1997, except for the 21 locations I mentioned earlier that are above the 52nd parallel. There are specific technology issues that must be addressed, and those particular cases will be brought onboard this common digital platform by the summer of 1998. Everything below the 52nd parallel will be done by the end of 1997.

The Chairman: Which means everybody will have digital switching equipment?

Mr. Lacroix: Everyone will have access to a digital switch, that's correct.

The Chairman: On page 9 you have provided examples of potential rate increases, using Huntsville as an example. Does that include the $2 plus $2 rate increase that the CRTC has already approved?

Mr. Lacroix: No, it does not. The price increases we are talking about in this proposal, if approved, come into effect on December 1, 1996. The other rate increases were approved earlier for all Bell residential customers throughout Ontario. The rates that we are talking about here represent the revenues that would be used for our infrastructure program.

The Chairman: I understand the distinction you're making, but in reality.... Let's assume the CRTC approves what you've asked for in September. You've used Huntsville as an example. It would go to $12.40 on December 1 and then to $14.40 on January 1. That is the reality, isn't it?

Mr. Lacroix: That is the case, yes.

The Chairman: Okay. I would make a suggestion, as I have to others in your company, that when you provide these examples, you note that another $2 increase has already been pre-approved. I realize it's for different purposes, but it can really - somebody would read that and think they are going to pay $12.40 and find out the next month they're paying $14.40. I would suggest that be put in there.

I'm going to ask Mr. Serré's question from a different perspective. This is open for debate, but Bell is asking for an increase from rural customers to make an investment in rural Canada. I think that is what Bell is saying.

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Has the opposite ever happened? Has there been an increase in Bell's urban Canadian residential rates that was not applied to rural areas? These rate increases are not going into downtown Toronto. The argument is that's because you're making an investment in rural Ontario and rural Quebec, so rural subscribers will pay for it.

Has it ever happened the other way, where a rate increase was applied to the urban areas that did not get applied to rural areas?

Mr. Lacroix: In terms of whether those moneys would be there for infrastructure development, the quick answer is no.

Our rate structure now is primarily based on the number of telephones that a customer can call. The more telephones a customer can call, the more the customer is charged for that service. That is the current rating structure.

For example, the communities surrounding Metropolitan Toronto are charged a higher rate than Metro Toronto is. This is mainly because the smaller communities to the north, east and west can call locally to the city of Toronto and the suburbs of Toronto. They have access to more telephones. That is the policy in terms of the residential rates for those services.

The Chairman: Thank you, Mr. Lacroix. I realize you've travelled a long distance to provide testimony to the committee today, and I'm pleased you were able to do that. I can almost assure you that the issue of telecommunications infrastructure is going to be an integral part of the report we produce on rural Canada, so we appreciate your input to this process.

Mr. Lacroix: Thank you, Mr. Chairman. It's been a pleasure to be here with you today.

The Chairman: We have one more witness for today and then we'll adjourn.

We are pleased to have Mr. Martin from Tembec Forest Products. I'm pleased you've been able to find the time to come down and talk to the committee about your company and the fact that you are a good example of value-adding in the natural resource sector.

Please make a few opening comments and then we'll ask you a couple of questions.

Mr. Kenton Martin (Vice-President and General Manager, Huntsville Division, Tembec Forest Products Group): Thank you, Mr. Mitchell.

I'm the vice-president and general manager of Tembec's Huntsville division, so I come from a very narrow perspective. I'll try to speak for Tembec as a whole, but I'll speak more from the division here in Huntsville.

To give you some background on Tembec, we are a billion-dollar-per-year pulp and paper company. We were started in 1973 by employees and management who bought out an abandoned pulp mill from a U.S. company, which had closed the mill for about a year, up in Timiskaming Quebec.

Tembec operates with many stand-alone operations in Ontario and Quebec. It was founded in Quebec but is now almost equally split between Ontario and Quebec. One of these is Huntsville, which operates very independently. Here we produce hardwood flooring.

This division has $30 million in annual sales, 240 employees and 150 forestry contractors on top of the 240 direct employees. We started here in 1989 with 75 people and $5 million in sales, so you can see the growth in six years.

We're involved in managing the forest - harvesting, sawing lumber, and then manufacturing value-added products such as hardwood flooring. The overall payroll for Tembec is about$160 million to direct employees. That's in northern Ontario and Quebec. Huntsville is the southerner in the Tembec organization.

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As for local payroll, we have $12 million directly into Huntsville and another $9 million between forestry workers and stumpage in this region. We also do another $3 million in business in the Huntsville area.

Our markets are 80% export. They're roughly one-third Europe, one-third U.S., 15% Canada, 20% Asia. The U.S. and Asia are the growing segments of our market. There is a very global market in flooring.

Our product, as I mentioned, is hardwood flooring. We also do a lot of dimension products, which are partially processed lumber ready to assemble. They are shipped to other countries for manufacture into other products. Bowling pins are a good example. We produce the blanks, and they turn and plasticize the bowling pins in the U.S.

Most of the barriers to success for our company, specifically here in Huntsville, are provincial issues. In the forestry sector, most of what we see is a provincial issue because that's who manages our world.

The quality and volume of timber are a problem. We're in the northern regions and we compete with lesser standards in the U.S. and other parts of the world. That makes their timber higher quality and less costly in the short term.

Another major barrier is access to capital. Although we are a publicly traded company, this division has a lot of projects with a payback under three years, sometimes as low as a one-year payback, that we can't get financing for. Tembec, as some of you know, has grown tremendously, from a small company in northern Quebec to over $1 billion. In total assets, in the last five years we've gone from $500 million to $1.6 billion, so we have tripled. It's put a shortage on cash, particularly for independent operations like ours.

Another barrier is the regulation and the people cost in Canada. When you get into valued-added, you are talking people cost, and unfortunately Canada doesn't stack up well. In our industry, for example, we pay around $13 here in Huntsville, which is a pretty meagre wage in this region, but we are the highest-paying flooring plant in North America, bar none. Most competitors are paying $8 to $10 in the southern U.S. and southern Quebec.

We've also had a lot of new competition in the last decade from Korea, Taiwan, China, Holland and Czechoslovakia. They often buy raw materials from Canada and the U.S., do the value-added where there's low-cost labour, and then import it back into Canada and the U.S., mainly the U.S. It's a serious threat and a very bad trend. We have to beat them, to jump to some of the solutions. Most of our strategies to beat the low-cost advantage that those less developed countries have involve quality and efficiencies through capital. We have to keep ahead of them.

The last barrier we see is access to trained people. We interact a lot with German foresters here. We actually ``role model'' off...and they ``role model'' off some of our practices. In Huntsville alone we have some pilot programs going on in that regard. There's no formal training here. In Germany and the U.S. they have a variety of training for manufacturing, research, forest management and value-added for forestry.

It's an insult to me, and I think to Canadians, that the U.S. states have much more advanced educational facilities for forestry and for value-added than Canada. In Canada there's essentially none. If you look at the universities, none offers courses in value-added wood processing. We do have graduates trained in New Brunswick and northern Ontario - almost none now at the University of Toronto, which used to be the standard for forestry - for government work. They don't have training in economics. They don't have training in value-added processes. They don't have training in business finances or marketing or human resources. Most of them have one or two courses in economics.

In Germany foresters are regarded as professionals; it's a well-regarded occupation. They educate and train and build professional forestry workers. They have better standards and better practices than we. The rural people who are usually employed in the forests have a better standard of living than our foresters as well.

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A rural issue we see is that people don't want to live where there are no family services. Huntsville is one of the few Tembec mills that doesn't have a real disadvantage in drawing in professionals. When we go to northern Ontario and northern Quebec, we can't get people in; we can't get people to stay. It's simple things, non-business issues. It's the social side of things - sports facilities; theatres; spousal employment opportunities, which are critical for us nowadays; medical services; educational services. The result is that the people with opportunities, the people with education and professional skills, are drawn to the cities.

One solution is perhaps taxation. We have much higher costs of employment than even our U.S. competitors. Taxation is one way to reduce this or to equalize the playing field. It's very expensive to do business in Canada. As I mentioned, this is a threat to value-added processes in Canada when the economy is globalizing.

Personally, I've seen little effect from the federal government's regional development, before or after. It doesn't play a role in our business for the most part. From the experience of other nations and Canada in the last century, we have seen that the government has had little effect in redirecting the national economic forces, which are away from rural and to urbanization, unfortunately. To me, the government could do more by reducing its involvement and studying the framework for some successes. I'll get into that in a second.

Another problem that comes out is government money propping up weak competition, particularly in Quebec and the Maritimes. In Huntsville our best competition comes from southern Quebec and one or two from New Brunswick. They take their lumber from Ontario and Quebec to New Brunswick, process it and compete with us in Hong Kong. It reduces the prices, it makes us less viable, and in the long run that company is not likely to sustain itself without government assistance. It happens in southern Quebec too. There's a lot of money going in there that's basically unavailable to companies operating in Ontario. It does the industry a disservice on the whole. We have to find new opportunities, not compete with existing Canadian businesses.

The training for forestry workers and rural occupations is a huge opportunity. It's more of a provincial jurisdiction, but perhaps there's room for federal interference as well. We have computers. I was thinking as I listened to Bell Canada here that we have computer-linked training. You see all the universities doing it now. It's a huge opportunity that perhaps the federal government could enhance to make Canada a leader in that field and to enhance the rural population's education.

If you desire the resource industries to expand in value-added, then we need to expand and strengthen the industries already there. I've been in the forestry industry for some 30 years, and we see government efforts going to other industries. We want to be in high-tech or in tourism. Forestry is one of the backbones of this province and of this country, yet governments like to ignore it because it's seen as obsolete and old-fashioned.

There are a lot of things we could do to strengthen and boost the industries that are there. We could help reduce the people cost, which is really taxation from the federal perspective, and reduce regulation. It's a paradox for us. We don't want to see a reduction in environmental laws and we don't want to see a reduction in safety laws, but our competitors have much lower standards. That's a tough thing to compete against. There is a real cost to that.

Train people in value-added processes by studying the conditions.

In summary, I think the detriment is financing unviable businesses. The most important contribution can be through education, training and apprenticeship. Look at forestry in our region here and make people professional foresters. Make it a profitable, professional industry, and that will allow people to stay rural and will allow the forest industry, one of the backbones of this country, to succeed.

The Chairman: Thank you very much, Mr. Martin. Very well done.

Monsieur Asselin.

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[Translation]

Mr. Asselin: First of all, I would like to congratulate you for your excellent presentation and thank you for having raised committee members' awareness of the problems you face when the government agrees to deal with the United States or Japan for rough timber products. On the one hand, we can help you and on the other hand we can harm you.

How could the government help you keep your business and allow you to start thinking about expansion, without having rough timber exports harm you?

[English]

Mr. Martin: I'm not sure what the government can do. I guess it's more of an issue of what they can't do. That is, they need to be cautious in assisting competition to prop up companies that threaten stronger companies. We've seen that in the pulp industry as well. Mills have been re-opened - usually it's a more local issue - and have been propped up at the expense of other Canadian competitors, certainly in the flooring.

There are other issues. The government spends a lot of time on the big issues like free trade and the softwood tax. There are a lot of little issues out there. There's a cartel on flooring in the U.S. We are maple flooring producers. There are five in the U.S., they have a cartel and they will not accept Canadian members. I have a letter to that effect.

They represent themselves as the authority or the regulatory body on flooring quality and they architect specify. Pretty well every U.S. job is specified MFMA, which we cannot join.

What's interesting - and we were fighting with this actually just minutes before I came here - is that the Canadian architects also specify MFMA. In Vancouver, we just lost a job we had because they specified MFMA, which is an American cartel.

We've taken it to the trade, but it's not a big enough issue. They promised us quick action years ago and it's not a big enough issue. There are too few players in Canada. It is a tough thing for a government. It's a lot of effort for a few companies in Canada.

Quite frankly, I think the Liberal government and the provincial government have both made a priority and done a good job of reducing the taxation in Canada. We've got to have employment costs that are similar at least to our U.S. competitors.

In Huntsville, value-added is 40% labour, which is high and is the crucial issue in our business. When you add on our benefits, our extra costs are around 35%. Talk to our American counterparts and it's around 15%. They don't offer very good benefits, but it's around 15%.

This is a huge disadvantage for us when you talk about value-added being 40% labour. That's why you see a lot of primary industries in Canada where the resources are, but not the value-added. They're going to other domains.

[Translation]

The Chairman: Thank you. Mr. Serré.

[English]

Mr. Serré: I have one quick question, but it may be of no relevance to our study. Are you happy with the softwood export agreement we've done with the United States and the announcement by the minister on a quota system?

Mr. Martin: No one's happy with the situation, but I think that's one of the best realities. Our business is not directly affected by it - the Huntsville division. In Tembec, as a whole, 30% of our business is affected by it.

I believe the consensus in Tembec is that it is one of the best solutions you could come up with. They did leave a lot of it up to the companies. I think it was wrong a few years ago when we took more of a nationwide view. I think it is a better approach this time around. It's probably the best compromise the Canadians could get.

Mr. Serré: The best of a bad situation.

Mr. Martin: The best of the worst situation, exactly.

Mr. Serré: Thank you.

The Chairman: I have a couple of questions to explore with you for a minute.

You talked about the issue of access to capital. Are you talking about your ability to acquire debt capital or equity capital?

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Mr. Martin: Either capital would be fine by us. Tembec is limited to some degree on its equity capital. They're basically maxed out on both as a whole. As an independent operation we have an excellent track record, excellent profitability, and credibility in capital projects, but we can't tap into that.

I'm not sure what the quick answer is. If there were programs - again, it's more of a provincial issue, but - where employees can participate, where there could be local participation.... The rules are quite tough on employees investing in their own companies. I guess some safeguards are good, but we need a mechanism to be able to draw capital locally. We can't do that.

The Chairman: Are you receiving the support from Canadian financial institutions that you think you should?

Mr. Martin: Our company president, whom some of you know, would say no, not at all. His personal goal is to have nothing to do with the banks. I know that may be offensive to you personally, but we've had some bad experiences and they have not been supportive. Our best mechanism is to go to the U.S. to finance through bonds.

The Chairman: In your testimony you outlined a dilemma, I think. I don't know whether you did it on purpose or whether it came out that way. You talked about the fact that 80% of your product is shipped to the United States.

Mr. Martin: Sorry. Eighty percent is exported; only about 30% goes to the U.S.

The Chairman: Okay. Eighty percent is exported, which means you need as open a global market as possible on the one side because you sell your product - the 80% - that way. On the other side, though, you made note of the fact that you are also being hurt because of what companies can do overseas by buying our raw material and then having free access back into our market.

So really there's a dilemma there. You want to have free access to their markets, but to get that free access we have to give free access to ours and that's hurting you. On balance are you a free-trader or do you feel there should be tariff barriers?

Mr. Martin: I don't think there can be tariff barriers. As a company that exports 80%, we would be devastated if anyone took a trade barrier attitude. In Canada, as we've proven in Huntsville, we take something from the forest and it's a finished product when it comes out of our plant. It's fully value-added.

We have an inherent advantage, a global advantage, in that and it should be done here. We should be able to do it here if all conditions are right and normal. The competition from Asia or others is our fight. As business people I think we have to be sharper and whip them or, through capitalization and through quality, beat them at that game, but not through barriers, no. I think that's the wrong approach.

The Chairman: When you talked about the cost of labour, I wasn't clear whether you were talking about the actual wage scale or the cost of wages, the 30%. I can't remember the exact amount you mentioned.

Mr. Martin: The benefit cost in Ontario is closer to 40%. It's both. It's the cost of wages. If you look at taxation through our system, it is expensive and we have to pay high wages to get decent people. Again, $13 an hour in Muskoka is not a very good wage, but it is a high cost relative to the rest of the world. When you look at the southern U.S., they pay $8 and their quality of life really isn't that much lower than ours. So in my opinion it seems a lot is wasted in taxation and perhaps in the inefficiencies in our economy.

The Chairman: Thank you very much. We appreciate you providing testimony again. I think your company provides a good example of what this committee is looking at, one of the major components of it, and that is value-adding to our natural resources in rural Ontario and rural Canada.

An example of it being done successfully is when you mention the amount of payroll you're pumping into the local area and the spin-off purchases you make; it's not hard to see the enormous economic benefit to this part of rural Ontario and the fact that your operation is here in Huntsville.

Thank you for providing your testimony. You have provided a number of insights to the committee and we very much appreciate it. Thank you.

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[Translation]

Mr. Asselin: I wish to address you, Mr. Chairman.

This gentleman was the last witness to be heard. We are finished with him.

Last Thursday, I was asked to replace the member from Matapédia - Matane, Mr. Canuel. I would like to tell you, as well as your team which I have gotten to know, how much I enjoyed sitting with you. I must congratulate you Mr. Chairman on the excellent work that you and your team at the Standing Committee on Natural Resources are doing.

Of course, these travels have been pleasant and enriching for everyone. With regard to the people accompanying us, they assisted us in doing our work as members of Parliament. I would like to thank all the staff, all those who prepared the trip, among others Michel who did an excellent job, the two clerks, the production service, the people at the consulate and the researchers. I hope I haven't forgotten anyone. If that's the case, I also thank those I've forgotten. I hope I can work with all of you again on an upcoming trip and I wish you the best of luck.

[English]

The Chairman: Thank you very much, Mr. Asselin. We've enjoyed having you travelling with us this week. You've added considerably to our deliberations. You've always been there with the questions and trying to move forward our agenda.

To all of the staff and members, I hope you get a couple of days' rest before we head east for our next tour. We will be leaving Ottawa at 8 p.m., Sunday night, and we will reconvene in Amos, Quebec, at 9 a.m., Monday morning.

We stand adjourned. Thank you.

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