INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 4, 1999

• 1529

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I'm going to call the meeting to order, pursuant to an order of reference of the House dated March 1, 1999, main estimates for the fiscal year ending March 31, 2000—Industry, votes 1, 5, L10, and L15.

We're very pleased to have before us the Honourable John Manley, the Minister of Industry, and the Honourable Ron Duhamel, Secretary of State for Science, Research and Development, Western Economic Diversification Canada.

We are also pleased to have with the minister from Industry Canada, Ms. Mary Zamparo, the corporate comptroller, and Mr. Andreï Sulzenko, assistant deputy minister, industry and science policy. Also in the audience is Mr. Konrad von Finckenstein, commissioner of the Competition Bureau.

Mr. Manley, I understand you have an opening presentation for us that will keep us enthralled.

Hon. John Manley (Minister of Industry): I do, complete with slides.

• 1530

Thank you very much and good afternoon. Once again, my colleague, Ron Duhamel, is here with me. He's here in his capacity as Secretary of State for Science, Research and Development. As you know, he'll be returning later this week to meet with the committee in his capacity as Secretary of State for Western Economic Diversification. I understand the officials will be staying after I leave, for further questions, if the committee wishes.

I want to begin by congratulating the members of the committee for their work, since we last met to discuss the report on plans and priorities. In the past year, you've reviewed and contributed amendments to Bill C-53, the Canada Small Business Financing Act and ensured a smooth transition to meet the policy objectives under the new act.

You also reviewed Bill C-54 on privacy and electronic documents, and C-20, amendments to the Competition Act. In the future the committee will review C-75, an act to establish the Canadian tourism commission.

[Translation]

You kept abreast of the country's readiness for the Y2K problem and showed leadership in bringing this issue to the fore. I am glad that you have invited Industry Canada officials to meet with you next week.

Your work on Y2K and other issues is helping Canadians to respond to change in their own communities and around the globe.

The nature of economic change differs in each region of the country, but it is driven by global forces. For example, while Canadian businesses are being introduced to new and lucrative markets around the world, they also find themselves battling new competitors right here at home.

[English]

We must shift to a whole new level of competition in a knowledge-based economy, an economy built around an electronic communications infrastructure, with human skills and ingenuity as its most valuable resources.

Industry Canada, together with its 12 partners within the industry portfolio, plays a pivotal role in enhancing the economic growth that will create jobs and boost Canadians' standard of living.

The portfolio offers over 500 points of service in communities across the country. Add to these the thousands of community access program sites and you have an idea of the enormous reach of the industry portfolio across Canada. The regional agencies and FedNor in northern Ontario act as agents of economic development and job creation, taking pride in being flexible, responsible, and accessible to Canadians.

Our partnerships with business, consumer, academic, scientific, and voluntary communities further extend our ability to help Canadians adapt to the forces of globalization and change.

[Translation]

Canadians look to the federal government for leadership in addressing both the social and economic challenges they face in that transition to the knowledge-based economy.

To help Canadians meet these challenges, Industry Canada focuses its efforts on five strategic areas. I would like to explain why each of these is important.

Innovation and knowledge are the raw materials of the 21st century economy, providing new tools and techniques, changing the way we do things, helping us make better use of resources, and making the economy more prosperous.

Industry Canada continues to be a major contributor to the government's innovation strategy which focuses on the creation, dissemination, and commercialization of knowledge. For example,

[English]

Technology Partnerships Canada, TPC, invests in projects that foster international competitiveness, innovation, and commercialization, as well as increased investment in Canada. As of March 31, 1999, TPC had approved $774 million in R and D investments through 79 projects with private sector partners.

We invested $55 million in CANARIE to build the world's fastest and first all-optical research network, CA*net-3. It will deliver unparalleled network capability to Canadian research institutions and universities faster than any existing commercial Internet service.

Let me give you some other examples of innovation from the industry portfolio. The university granting councils are funding research and training, building the partnerships needed to develop the knowledge base and skills Canada needs.

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The Canadian Space Agency showcases Canadian expertise to the world through our endeavours in international space programs. This video clip demonstrates the pride six young Canadians chosen by the Space Agency will experience when they attend the next launch later this month at Cape Canaveral.

[Editor's Note: Video presentation]

Mr. John Manley: Industry Canada's second objective is called Connecting Canadians. We have an ambitious goal to be the most connected nation in the world by 2000.

[Translation]

Last year, I reported progress on SchoolNet's objective of putting all of Canada's public schools and libraries on-line. We succeeded in March of this year.

Last year, we had installed more than 50,000 computers through the Computers for Schools program. This past March we celebrated, with our partners, the delivery of computer number 125,000. That places us half way to our goal of 250,000 computers by 2001.

[English]

The community access program has now connected over 4,000 rural sites toward our target of 5,000 such sites. We've set a new target of up to 5,000 in urban centres by 2001.

Last year I said I would place a high priority on the framework to make Canada a location of choice for electronic commerce. We are establishing a framework we call the seven firsts. As a committee, you did a lot of work on two of these firsts: privacy and digital signatures.

Our success in becoming one of the most connected nations in the world will have a major impact on Canadians' standard of living.

Industry Canada's third objective is to improve the conditions for investment in Canada. Investment Partnerships Canada coordinates targeted campaigns to encourage multinationals to invest in Canada and provide research and product mandates for their Canadian subsidiaries. We're working in partnership with other federal government departments, provincial and municipal governments, business associations, and intermediaries to increase and retain foreign direct investment.

The department also promotes increased investment by small and medium-sized enterprises and targeted groups. Our financing tools help establish new businesses and assist existing businesses to grow.

[Translation]

Our information products are customized for local, national and international needs. Many of these are available online over the Net, or can be delivered in person at a Canadian Business Service Centre or through an extensive outreach program.

Community Futures Development Corporations - in Atlantic Canada they are called Community Business Development Corporations,

[English]

Community Futures Development Corporations in other parts of the country, provide key delivery points for federal services throughout rural Canada. There are over 220 of these across Canada.

We also provide support and services that are unique to aboriginal businesses and entrepreneurs.

The small business information fairs are very popular and effective in communicating directly with Canadian entrepreneurs. Over 68,000 Canadians have attended the conferences and trade show component of the events. If you haven't attended an info fair, I encourage members of the committee to make the time to do so. This video will give you a quick idea of what an info fair is all about.

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[Editor's Note: Video presentation]

Mr. John Manley: One of the highlights for this year will take place in October when Industry Canada, along with the Canadian Federation of Independent Business, will co-sponsor the 26th International Small Business Congress in Toronto. We anticipate about 1,000 delegate, 40% of whom will come from outside Canada.

[Translation]

The department's fourth objective is to help increase Canada's share of global trade. Canada depends on trade for nearly 80 per cent of its gross domestic product.

Industry Canada, along with the regional agencies, provides services and advice to help businesses make their products and services export ready.

We are active partners in the Team Canada Inc. Approach to trade promotion, the International Business Development strategy, and the ExportSource which can be accessed through Strategis. We are improving and modernizing our trade services, and will continue to help current exporters and prepare new exporters for international markets.

Provincial trade networks have been established in partnership with the provinces to coordinate trade development activities and streamline services.

[English]

Our fifth strategic objective is to build a fair, efficient, and competitive marketplace for businesses, consumers, and investors. We've streamlined and modernized many of our marketplace framework laws. We've also put into place legislative reviews to ensure we keep these statutes relevant.

Last fiscal year, Parliament passed legislation that ranged from making financing more available to small businesses, to providing tools to fight telemarketing fraud. This year marks the beginning of consultations to ensure Canada's competition regime meets the demands of the global marketplace. We will also see measures to reduce regulation and increase reliance on competition.

I know this committee is concerned about whether the Competition Act gives consumers and independent retailers adequate protection against predatory pricing. The commissioner of competition, Konrad von Finckenstein, has stated his willingness to cooperate with the committee in its review of anti-competitive pricing practices. We want to make sure our competition law continues to be effective in today's changing marketplace.

[Translation]

Consultations have concluded on further reform of the Canada Business Corporations Act and we hope to introduce a bill in the fall of this year. And 1999 will see Canada's first spectrum auction, providing an open, fair and efficient approach for spectrum licensing.

[English]

So these are the five strategic areas where Industry Canada promotes job creation and Canada's standard of living in the global knowledge-based economy. I'd be happy to talk about these in more detail and explain some of the significant specific initiatives we've overtaken.

Again, Madam Chair, I thank the committee for the work it has accomplished over the past year. I look forward to continuing to receive your advice in the months ahead. Thank you very much.

• 1545

The Chair: Thank you very much, Minister.

Mr. Manley will be here until 5 p.m. Officials will be here after that, if there any questions.

I'm going to begin with questions. Mr. Forseth.

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Ref.): Thank you very much, Mr. Minister, for coming today. Looking at the booklet of the estimates, there are quotes such as, “Productivity growth is the key to maintaining and improving living standards”, and “It gives the biggest bang for the buck”. Later on it says “But if, on the other hand, productivity in Canada had grown at the same rate as in the United States since 1979, our real income today would be more than $7,000 a year higher per person”. That's quite an admission.

You also said we would get broad-based tax relief or tax cuts as we can afford them, I think the phrase was. You also said elsewhere we have to fix things—there's an imperative there to do that.

Some of the rationale for not being able to deliver broad tax relief has also been interest on the debt. I'd like you to respond to the issue that maybe a lot of government spending is really the problem that distorts the market. It's really an issue of balance between an interventionist government that still has relatively high levels of spending and trying to pick winners and then selecting to give some breaks.

But don't you believe, with broad-based tax cuts, the government could do better than it is now if it would live within its means and provide a better balance than your traditional approach of trying to pick winners and losers? If you pick a winner, obviously there is a loser. The historical approach you're proceeding with now is only marginally successful. We can shift to a climate that is much more geared toward growth with broader-based tax relief, rather than the selective programs that are spun out of government.

Mr. John Manley: There are several elements to that question. First of all, clearly I think the $16.5 billion over the next three years is a broad-based tax reduction. It includes overall rate reduction, both through the elimination of the 3% surtax as well as other measures. So you do have that.

Furthermore, when you talk about level spending, it needs to be in relative terms. As we've brought the percentage of GDP spent by the federal government down to the lowest level since the 1950s, it's difficult to characterize the government's overall fiscal position as having been spendthrift.

So the basic question “Do you cut taxes when you haven't balanced the budget?” is one different governments are clearly taking different approaches on. I happen to think the priority was to get the deficit down. The fact that we balanced the budget two years in a row for the first time since 1952 is not bad, considering where we came from. To be able to do that while at the same time introducing tax reductions is all to the good.

But nobody ever said one day you would declare a victory and every problem would be solved. The reality is this is a process. There's nothing inconsistent in saying we have had tax cuts and there should be more as we can afford them. That's because as we improve our fiscal situation we'll be able to afford them, and that's consistent with doing some of the other things I think we need to do as well.

On programming, I know it rolls off the tongue easily to say government programming picks winners and losers. I think that's a pretty tough case to make when you look at the array of programming we've been talking about. Go to one of the small business fairs. This isn't about picking winners. This is about making information available to people so that they know what opportunities are out there, providing not only information through CFDCs but also very small levels of financial assistance through loans on a community-generated basis, a community decision-making basis. This is not picking winners and losers. This is ensuring that local communities take responsibility on their own for local community economic development. So if there are particular programs you want to question, that's fine, or if there are ones you think should be cut, we can debate that.

• 1550

Mr. Paul Forseth: I'll change gears here a little bit.

We had a headline in the National Post that said “Productivity report delayed by two months”:

Statistics Canada is delaying by two months the release of its preliminary report on the country's 1998 productivity—findings [we are told] expected to reveal a deterioration in growth.

The report is believed to show virtually no further growth last year following a one-year burst in labour productivity in 1997. Last year, the United States, Canada's major competitor, posted strong productivity gains.

News of the setback, of the delay in releasing the figures, certainly is an issue. They're saying high taxes are “eroding Canada's productivity and standard of living”.

Then we read:

In Montreal...the Prime Minister said that reducing taxes is far from being the miracle solution advocated by [our party]...to stop the exodus of our most talented Canadians to the United States.

Mr. Chrétien said the government must reduce taxes

—again, the mantra we all hear from the government side. But it also then goes to the other side and says “it must invest in education, health care”, as a kind of excuse, in a way, for not providing tax cuts. Whoever said we shouldn't be spending on health care and education?

The Chair: Could you ask your question, please? You're running out of time.

Mr. Paul Forseth: How much time do we have? Ten minutes?

The Chair: You have five minutes each.

Mr. Paul Forseth: Okay.

I'm asking, why the delay in the report? What's going on here? Did your department have anything to do with the delay of the report?

Mr. John Manley: No, absolutely not.

I inquired for the purposes of Question Period today. I was informed that they never said the report was expected to come out two months ago, that a reporter must have misunderstood them, that they released it in July last year and in June the year before and they expect to release it in June again this year. That's the extent of my knowledge about it.

The National Post has been known to print a story before it's quite right.

The Chair: Thank you, Mr. Manley.

Mr. Peric, please.

Mr. Janko Peric (Cambridge, Lib.): Thank you, Madam Chair.

Minister, I'm glad to hear from you that there is improvement in investment, especially in foreign investment. I have a question on that topic.

I'm really pleased to read on the last page of your statement that the commissioner of the Competition Bureau, who happens to be here, Mr. Konrad von Finckenstein, is willing to cooperate to amend the Competition Act.

As to my first question, as you know, last year your office completed a study on automotive competitiveness, and in recent days there have been articles in several national and Cambridge newspapers about the possible expansion of the Toyota Motor Manufacturing plant in my riding and the obstacles that may prevent that from happening.

I would like to read you a quote from Toyota's spokesman, Greig Mordue. I would appreciate your comments on his statement, as well as a brief synopsis of what the automotive competitiveness study concluded on the matters raised by Mr. Mordue. He says:

“We build a lot more cars here [in Cambridge] than we sell in Canada, yet we still pay a disproportionate share in tariffs,”....

“The federal government hasn't dealt with the tax issue. We are at a substantial disadvantage over our American-owned competitors.”

The second question deals with the issue of competitiveness. My constituents believe, as I do, that the gasoline producers and retailers are engaged in some type of criminal activity every time they increase their prices prior to a weekend, especially a long weekend, only to drastically lower them after the weekend. However, the Competition Bureau has ruled in favour of the gas giants each and every time. Can so many Canadians and independent retailers be out to lunch on this, or is the problem a weak Competition Act that has tied the hands of the Competition Bureau, as we hear from Mr. von Finckenstein? Mr. Minister, how are you going to address this issue of great concern to many Canadians once and for all?

• 1555

Mr. John Manley: First of all, we conducted a very thorough study of the automotive sector, which culminated in the automotive competitiveness review that was released last June. We did review the issue of tariffs and the effect of the auto pact at that time.

We came to the conclusion that given the differential, for example, between Canadian and U.S. tariff rates that in some ways favour offshore producers and in other ways don't.... I take note of the quotation, but what is not mentioned is that auto parts come into Canada duty free, whereas they are subject to a duty going into the United States. What is also not mentioned is that all finished vehicles coming into Canada come in at a 2.5% rate, whereas the lucrative truck market in the United States is protected by a 25% tariff. So when you look at the whole thing in balance, when you look at the benefits the auto pact has provided for Canada over many years, it is our belief that we should preserve the auto pact.

We made it clear that we felt that any further discussions on lowering the tariff ought to be conducted in the context of a multilateral tariff negotiation—namely, the next round of the WTO—at which time we would be certainly prepared to review tariffs in the context of other countries reviewing the access that Canadian manufacturers have to their markets. I'm not aware of too many governments, including that of Japan, that have unilaterally reduced tariffs without getting anything in exchange for that. So my view is that this is something we should be prepared to negotiate, that we will be prepared to negotiate, but in that context.

With respect to the competition law and gasoline pricing, I think the thing you have to understand, at least from my point of view—and this committee has more expertise on it now than I have, because you spent a long time studying it—is that the competition law exists for a particular purpose. It is created under the criminal law power in the Constitution. Therefore, you don't just presume somebody guilty; you need evidence.

You say the Competition Bureau has in every case ruled in favour of somebody. They don't make rulings; they determine whether they have evidence in order to prosecute. I'm at a loss to know why we would choose to change a statute for the sake of getting at somebody who we presume to be doing something wrong.

Mr. Janko Peric: Mr. Minister—

Mr. John Manley: Let me finish.

There are other options. The Province of Prince Edward Island, for example, requires justification to be given in order for gasoline companies to increase the price at the pumps. This is not something the federal government has the constitutional authority to do. Provinces have the authority to do that. If they think that's something worth doing so that you require companies to go in and justify a price increase, then I encourage them to do it. You don't get into the question of burden of proof and proving there was an intent, because, as you know, the difficulty in this issue is that the same set of facts consistent with somebody saying prices must be fixed is also equally consistent with competition. When you put your price up in six-foot-high letters on the street corner, you need to expect that everyone is going to have more or less the same price. So I think it's a dilemma.

• 1600

I think the committee spent a lot of time trying to figure out the best way to deal with it. I'm quite prepared in the context of the amendments to the act, as the commissioner has said, to work with the committee to see if there's a better solution. But understand what our constitutional jurisdiction is and why the act is structured the way it is, as a criminal law act.

The Chair: Thank you very much, Minister. Thank you very much, Mr. Peric.

Mr. Janko Peric: Too bad I don't have any more time, Mr. Minister. We could—

The Chair: No, I'm sorry, Mr. Peric, you asked three questions that took over three minutes.

[Translation]

Go ahead, Ms. Lalonde.

Mrs. Francine Lalonde (Mercier, BQ): Moving on to another subject entirely, I'd like to discuss Statistics Canada which comes under your portfolio. Gross expenditures of $389 million are forecast for fiscal year 1999-2000 to provide Canadians with objective, non-partisan statistics, I'm sure you're familiar with all of this.

Statistics Canada is currently preparing questions for the 2001 census. In 1996, in an effort to uncover information about the ethnic origins of Canadians and not with an eye to ethnic nationalism, Stats Canada included a question in the census that unsettled many Canadians and Quebeckers. Respondents were asked to indicate the ethnic or cultural group to which they belonged. Since "Canadian" was one of the categories that could be selected, the census results failed to provide us with information as to how many people spoke another language or claimed a different ethnic origin, or to gauge the degree of assimilation.

Since Stats Canada must submit the census questionnaire to the minister and to Cabinet, I'd like to know who made the political decision - because it is political - to include the word “Canadian” in the list of possible categories in question 17 and why?

As a secondary question, I'd like to know if you would be amenable to reverting to the original question so that we can continue to gather this vital information.

Mr. John Manley: As I recall, it was originally Stats Canada's idea to include this question on ethnic origin and these possible categories. Even if an independent agency is involved, census questions must be approved by Cabinet. Given that many Canadians did not identify with the possible choices listed, they responded in the last census that their ethnic origin was Canadian. I'm sorry if you're upset about the large number of people who listed themselves as Canadians, but that was their choice.

Ms. Francine Lalonde: The issue here is not whether persons identify themselves as Canadians. A census of this nature should provide information about the ethnic origin of a country's citizens, as is the case in the United States. Mr. Fellegi and the deputy minister concerned, Mr. Lachapelle, admitted to the Ottawa Citizen that in some ways, the question had been included in response to political pressure from an organization by the name of Call Me Canadian, and also to follow the lead of the Americans.

The Ottawa Citizen checked into the situation in the United States and in fact, every effort is made to ensure that Americans don't respond that their ethnic origin is American because information about the ethnic makeup of the population is considered vitally important.

As you know, it is useful to have this kind of information in Canada, in terms of applying the Official Languages Act and certain policies, whether intended for Quebec's anglophones or francophones elsewhere in Canada. It's important to know the diverse ethnic origins of Quebec's francophones. It's a scientific question.

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As the minister responsible for this agency, are you prepared to resurrect the question used in 1991, thereby keeping Stats Canada's reputation intact? This change, which was introduced for purely political reasons and which you may not have been aware of, has sullied the agency's reputation and upset many people.

Mr. John Manley: It was not a political question, as you understand it. Nor were the reasons for the government asking it questionable. If Stats Canada experts feel that it is a valid question from a scientific standpoint and recommend that it be included in the census, then I'm prepared to go along with that. However, if the feeling is that many Canadians won't provide an appropriate response, then perhaps Stats Canada should reconsider and make some changes. I'm certainly prepared to take into account the recommendations of the agency's experts.

Mrs. Francine Lalonde: Only those of Stats Canada experts?

The Chair: Mrs. Lalonde.

Mr. John Manley: They are the ones who make recommendations to Cabinet.

Mrs. Francine Lalonde: The problem, however, is that the number of former Canadians has decreased from 7 million to 3.5 million.

[English]

The Chair: Madame Lalonde, Statistics Canada is going to be here on Thursday afternoon, so you can talk to them directly.

[Translation]

Mrs. Francine Lalonde: This is a political decision made by the Minister, Madam Chair.

[English]

The Chair: Mr. Shepherd, please.

Mr. Alex Shepherd (Durham, Lib.): Thank you.

Thank you for being here today, Mr. Minister.

I know you're very proud of the technologies partnership program, and the press has said this is a giveaway program and so forth. Can you tell us specifically how much money has been repaid through the royalty payment mechanism? Is that on schedule? More importantly, what is the accounting for those royalty payments when they come back? Are they going into general revenue as opposed to going back to the program itself?

Mr. John Manley: I don't know if I have numbers. I would say, first of all, that it's fairly early in the process. You have to understand that, particularly with the large projects, we don't write a cheque. We're TPC partners in a project. The company's money must be spent first. As they reach stages of a project, then the sharing percentage of TPC comes in. Many of the projects we've already partnered in, for example, have not yet reached maturity. Not only have they not started to repay, but they haven't yet received all the money they have been promised because they haven't yet expended all of the development cost.

If you take a large project in the aerospace sector, for example, it takes years of work to get to the development phase. Essentially what we've endeavoured to do with TPC is to offset the competing support companies receive in other countries, largely under defence procurement arrangements. Again, it's recognized that it takes a long time to develop an aircraft, for example, or even parts of it. So we're not necessarily at the stage....

Up to March 31 we've met the target. The target for repayments in 1998-99 was $66 million. That mostly reflects small projects in the early stages. That was our target. We have collected more than $74 million up to the end of the fiscal year. So, yes, it's on track, but it's still early days.

With regard to the accounting, these sums are received by Industry Canada. They go into the TPC program and are considered part of our balance a year after they are received, if I'm right, Mary.

Ms. Mary Zamparo (Corporate Comptroller, Industry Canada): Yes. The $66 million is for all repayable contributions, and that's where we overachieved by collecting the $74 million. For TPC itself we collected about $13 million this year, and that will go into the sums available to TPC for further reinvestments next year. There's always a lag of one year.

Mr. Alex Shepherd: Okay.

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I understand you have another program, which is sort of a scaled-down version of that. It is basically TPC in combination with the IRAP program. I understand that this is just an emerging program. I don't think you've actually funded it at this stage. Could you give us an update as to what are the plans of the department with regard to funding that, when it will be on the ground, and how you feel that's going to impact emerging technologies and small business?

Mr. John Manley: The reason we twinned with IRAP is that we weren't satisfied with the rate at which TPC funds were becoming available to small business. IRAP, with its experience and expertise, was a better delivery vehicle for small business, so we combined money from TPC with some money in IRAP to provide a fund of $30 million per year. That program was operational in the last fiscal year. The IRAP representatives have received training in how to use it.

Effectively, what it tries to do is create a bit of a ramp from the existing IRAP program to TPC. IRAP generally is not repayable. TPC is fully repayable. IRAP-TPC will be repayable. So it creates a bit of a ramp in order to go from the really start-up, early-stage kinds of projects IRAP has sponsored for many years to more development-phase projects and later-phase projects that TPC does, but focused on small business.

Mr. Alex Shepherd: How do you see that impacting—

The Chair: Quickly, please, Mr. Shepherd.

Mr. Alex Shepherd: —the emergence of new technologies in Canada?

Mr. John Manley: IRAP has had a tremendous success rate in helping small companies not only develop technologies but also acquire technologies. They've received some pretty significant recognition for doing that. I think this gives them not only a significant increase in the amount of funds they have available to them but also a broader programming objective, which is to help companies that are moving closer to the development phase of their products.

One of our problems and one of the areas we lag in in terms of innovation has been commercialization. This is really focused on not just how we support the early stage development but also how we take a small company from the early development phase to the commercialization stage. So I think it will feed that gap in the development program as well.

The Chair: Thank you.

Thank you very much, Mr. Shepherd. Mr. Jones, please.

Mr. Jim Jones (Markham, PC): Thank you, Mr. Minister.

It says here:

Canada is building an excellent base to become the most connected country in the world by the year 2000. Canada is number one in the G-7 in home computer, cable and telephone penetration, and has the lowest telephone rates in the G-7, the lowest Internet access costs, the lowest costs of doing information technology business and the lowest software production costs in North America. The challenge for the near term is to translate these strengths into a palpable competitive advantage in all sectors of the economy.

I read that and then I hear you say you want us to be the leader in e-commerce, but right now 85% to 90% of all e-commerce traffic hooking Canada up is to the U.S. The largest bookstore in this country is Amazon.com.

Mr. John Manley: And growing.

Mr. Jim Jones: So what are you doing about this trend? Canada right now is 18 to 36 months behind the U.S. in the implementation of e-commerce, especially in the small business area. What are you doing about this to make sure we are going to participate in this new economy?

Mr. John Manley: First of all, wherever that estimate comes from, it doesn't apply to the public policy environment. If you talked to U.S. firms, as I did recently when I was in Silicon Valley, and took them through what we're doing in areas such as encryption, privacy, and digital signatures, you'll find that the public policy framework—which, frankly, is what we're responsible for in government—is more advanced here than in the United States.

Now, the private sector take-up rate, particularly for SMEs, is, I think, lagging, and that gives rise to that kind of characteristic. You see it not only on the sites, but also in portals. Even the Canadianized versions of U.S. portals lack the characteristics that exist in the U.S. versions.

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So I think we need to continue to press on this, we need to continue to work on the public policy framework, but I think we also need to be pretty proactive with Canadian businesses, saying the world is going in this direction. Seize the advantage, because the connectedness advantages are there. You can't get a high-speed Internet access in the United States in any major city for what you can get it for in our large cities. The contrast is striking. In every city in Canada, whether you choose ADSL or whether you choose cable—$39.95 a month. In most U.S. cities it is U.S. $60 a month for a comparable service. So we've got the wiring; we've got a lot of the advantages. What we really need is the businesses to say they're going to seize it and go with it.

Mr. Jim Jones: I don't disagree with anything you've said. What I'm saying is, what are we doing about the implementation rate of small business and businesses embracing this technology? As each passing year goes by, we're falling further and further behind our biggest trading nation, the U.S.

You're going to see all kinds of new paradigm shifts where you're going to just do your shopping on the Internet...and the consumer is not going to know where he's buying from. So we've got to make sure we have our own people embracing this technology so that people can be buying from our places, not the U.S. places. What we need is some type of a program to increase the awareness.

Mr. John Manley: I'm glad of your support for programming. I think in fact, Mr. Jones, we've got a lot of that already going on in terms of the awareness we're developing through things like the information fairs, where we really press the advantages of electronic commerce, where we really try to create a demand through putting our information on line, through programming like the student connection program, which ensures that it's relatively cheap and simple for a small business to find out how to get hooked up to the Internet and get assistance from a student to do it. The kinds of information resources we make available create an incentive to use it on top of that.

In all humility, I think it's a marvellous tool for small businesses. It's a lot cheaper than what we used to try to provide in information resourcing, and it's a lot more comprehensive.

The water is there and the horse is there. How we get the horse to drink the water.... If you have any suggestions in addition to what we're doing, I'd love to hear them. I agree with you that we really need our SMEs to seize it.

The Chair: Last question, Mr. Jones.

Mr. Jim Jones: You mention in your presentation that one of your goals and objectives was to increase Canada's share of global trade. How are you going to do that?

Mr. John Manley: We've tried to identify some of the gaps, and one of the key areas again is in SMEs. Our trade numbers are impressive but tend to be focused on large firms, and a lot of our success has been in what you might call traditional sectors—manufacturing, particularly automotive, and natural resources. What we're trying to do and what we need to do is facilitate the experience by smaller businesses in other sectors of trade, both between the trade officers who are within Canada, inside Industry Canada, and outside Canada in the Department of Foreign Affairs and International Trade.

There's been an emphasis on small business, on seminars and programming to help small businesses learn how to export, giving them the tools to use and creating the environment either in trade missions or in direct contacts. For example, we have a program to link...you can get on a database in Canada as a trade officer say in Tokyo determines a need in Japan. They link that need with the Canadian firm that is registered within the country.

• 1620

So we do some of that matchmaking kind of function. I think that's going to be required on top of what really needs to be a cultural change. We really need Canadian small businesses to realize that globalization can work for them.

The Chair: Thank you very much, Minister.

Madame Jennings, please.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Madam Chair.

[Translation]

Thank you very much, Mr. Manley.

In both your presentation and your report, you emphasized the need to create conditions within the Canadian economy that are more conducive to investment, and I agree with you on that score.

I travelled recently along with a group of young entrepreneurs to Silicon Valley in northern California. These young people work in fields such as Internet technology, the environment and computer animation. One fact that emerged clearly was that for the past 100 years, venture capital has played a key role in the growth of California's economy.

We can't boast of a similar tradition here in Canada and I wonder if you have any idea of why this is so. Does our legislative or regulatory framework act as an impediment? How can we encourage foreign risk capital investors to come on board or better still, how can we create our very own risk capital?

My second question concerns the Smart Communities program. I've yet to see any background material on this initiative, although I have heard that the government plans to spend $60 million over the next three years on demonstration projects. Have you established any program eligibility criteria and published any background information about this pilot program?

Mr. John Manley: No, not yet, but I can give some details. The report was presented to the government in early February, before the budget, if I recall, and an announcement was made about program funding. Once all of the criteria have been established and members of the selection committee are appointed, we will be prepared to launch this program which will be public and open. At least one community per province will be selected, as well as one northern and one aboriginal community. I preferred to leave the selection process in the hands of a committee of experts. I hope to be able to announce the specifics of this program before the end of June so that we can have some idea of the interest it will generate and perhaps arrange for some consultations in the fall

Venture capital is a complex issue, one that we have been considering for the past six years. I've also visited Silicon Valley and have observed that people's attitudes are different. I met with four experts from a Toronto company that invested in intellectual property with a view to setting up a new high tech company. They were looking for $10 million Canadian. These four experts had set up companies in the past and were well-versed in technology. They had made the rounds of leading investment firms in Toronto, but their efforts proved unsuccessful. When they went to Silicon Valley in California, they were told they were asking for too little and were offered $45 million US. The only condition was that...

• 1625

Ms. Marlene Jennings: That they set up shop in the United States.

Mr. John Manley: ...that they locate their head offices in California.

The problems were are encountering are historical and cultural in nature. Our financial institutions have acquired more expertise in the mining and natural resources sectors and are still somewhat reluctant to invest in high technology. Some have established venture capital sectors that specialize in high technology, but we are still lagging behind, as far as solutions are concerned.

I'm not convinced that there is a problem on a political level or that there is a shortage of venture capital in Canada. As a result of working funds, venture capital is plentiful. However, there are some shortcomings in the high tech sector, particularly with respect to small companies and those just starting up. Surely you must have noted that each day, several new businesses start up in Silicon Valley. U.S. institutions are willing to invest, whereas our institutions are still somewhat reluctant to get their feet wet.

Ms. Marlene Jennings: Thank you very much.

[English]

The Chair: Thank you, Madame Jennings.

Mr. Kenney, please.

Mr. Jason Kenney (Calgary Southeast, Ref.): Thank you, Madam Chair, and thank you, Minister.

Perhaps you can help me with a historical picture of the expenditure levels in your department. Where have they been over the past five years, roughly? Stable? Increasing slightly? Decreasing?

Mr. John Manley: You know the historical numbers. The reduction in program review was in the order of 40% to 50%. That would have come into effect in 1995, as a result of the 1995 budget. That has been coming back up somewhat because of the establishment of Technology Partnerships Canada as a major program. In big terms, that would be the biggest single item of change. There is some funding, although relatively small levels, in order to pursue the Connecting Canadians objectives.

Mr. Jason Kenney: Okay. I asked the question because I've had many years of experience dealing with people in the small and medium enterprise sector of the economy. I was president of an advocacy organization that had some 40,000 SMEs as members. In all those many years of consulting with people in the small and medium enterprise sector, I have never met a single person to this day—I'm sure they're there, but I personally have never come across a single small or medium-sized business person or investor—who has advocated or asked for additional programming from government in support of business, some of the programs you deliver at Industry Canada. But I have detected a pretty overwhelming consensus in favour of the need for the tax relief that would stimulate investment and capital formation.

So I wonder if, in philosophical terms, you would argue...suppose you were to be the finance minister and the next budget comes around. You have surplus dollars to allocate. Would you be inclined, if you had a certain amount of money available in surplus dollars, to allocate that toward additional programming in Industry Canada or to small and medium enterprises and investors through tax relief? Philosophically, where would you place the priority?

Mr. John Manley: First, I won't venture down a hypothetical pathway.

Mr. Jason Kenney: It might not be so hypothetical.

Mr. John Manley: It's hypothetical right now. But there's programming and there's programming. There are a lot of myths out there, and I don't disagree that some of the myths have their roots in reality, that in times past programming was a lot more generous and a lot more varied, and in many cases probably wasn't that effective. But I'd encourage you, for example, to go to one of the information fairs and see what we mean by programming now.

• 1630

If you're there with a bag looking for money, you're going to be disappointed as a small business person. In fact, whether it's getting information about exporting, getting information about technology that's available, finding out what rules and regulations exist, there's a lot of information that we can offer and we do offer.

So we do surveys, as you did in your organization, after the small business fairs. And I can tell you that the vast majority are coming back. We don't do them right there; we call them afterwards. There is a very high level of satisfaction with what they've seen and the information they've obtained.

For example, the Government of Canada is a major purchaser of all kinds of things across the country. Well, one of the booths is Public Works and Government Services—how to sell to the government. Nobody ever thought of taking that outside Ottawa before and actually showing people how to do it.

So I guess I'm saying there's a certain amount of mythology about what the small business programming is.

Mr. Jason Kenney: Philosophically, if scarce resources are available, where do you think they would be better allocated to generate returns, concrete returns, in terms of increasing Canada's economic competitiveness? Through investment-friendly tax relief or additional programming?

Mr. John Manley: I don't think that's a question that's capable of that simple an answer. I think it depends on how much the resources are and what the choices are.

Mr. Jason Kenney: Another question I have relates to what I read in your report here, that of course Industry Canada is concerned about trade, and while it's not the direct purview of your department, it's obviously an important issue. We've recently seen, of course, a widening gap between ourselves and our major trading partner, the United States, apparently in large part because of Bill C-55, the protectionist approach to the magazine issue.

In your portfolio where you're concerned about increasing competitiveness, increasing trade, I wonder if you think it's been helpful that we have provoked this kind of trade rancour with our major trading partner. Do you think it was helpful that the Americans, for instance, pulled the kind of fast-track access that some of our defence contractors had to bidding on their projects?

Mr. John Manley: First of all, I don't think there's a connection between the two. I've no reason to believe there's a connection between the two. My discussions with my counterpart, who is the Secretary of Commerce, have not revealed that to be the case. There are invariably lots of issues that come up between Canada and the U.S. We have a huge volume of trade.

I think occasionally we have to push back. I don't think we can be acquiescent every time the U.S. doesn't like something we do. Otherwise, the relationship will never work to our benefit. So I think it's appropriate for us to take a stand on things and to be tough once in a while. So it's not troublesome to me. It would certainly be important for us to continue to seek a negotiated arrangement. But now and then you have to deliver the message that we also have to look after our national interests, not just continually say we're trying to get along with our best friend and biggest partner and biggest neighbour. I mean, all that's great, and the vast majority of our trade is not impeded by disputes or difficulties. But once in a while you have to say, look, we have a position here and we want to work it out.

Mr. Jason Kenney: So you're happy we're having this disagreement with the Americans.

Mr. John Manley: I don't think it affects the situation with the ITARs, the income tax application rules. I don't think they're linked. So far the bill hasn't been declared. It isn't through the Senate yet, so there's still hope.

Mr. Jason Kenney: There's still hope.

The Chair: Thank you.

Mrs. Barnes, please.

Mrs. Sue Barnes (London West, Lib.): Thank you, Madam Chair. Welcome to all of you.

• 1635

First of all, I want to thank you, Minister, for taking a leadership role with Bill C-54 because I think the electronic commerce and privacy bill is an important step for the federal government to take leadership on. We heard in testimony that it certainly is pushing the provinces to follow our course there.

I want to give you an opportunity to talk about...following up on Mr. Jones' thoughts. You were concerned about SMEs picking up the electronic commerce, but what about individual Canadians? Could you just relate to us what are the trends? Are Canadians actually getting on the bandwagon? My question is, how are Canadians reacting to electronic commerce, compared to some other developed democracies? What do you think the challenges are? How are we as a government going to educate the public to be able to have trust in electronic commerce? I'm thinking of maybe some of the people who have accessibility right now but are not utilizing it as much as they could. How are we going to get the message out about safety and all of these issues?

Mr. John Manley: Thank you.

First of all, as you know, I consider this to be a really high priority, and the notion of connectedness I think is going to.... It's a couple of steps from here to there, but fundamentally I believe the world is changing at a very rapid rate because of the developments of telecommunications information technologies, because of essentially the explosion of the Internet and what that means.

I don't think anybody is a very good forecaster of what all of the implications of that will be, but I'm convinced that this is transforming—it's not an evolutionary technology; it's transforming how business is done. It's going to transform how entertainment services are delivered and how books are sold, as Mr. Jones pointed out. I'm told they're fifth, not first, but they're growing rapidly and could well be first at some point. I think it's a phenomenal change, and Canadians need to position themselves to adapt to it rapidly. That's why there is the emphasis on connecting Canadians.

We've taken a couple of tranches at that. The numbers are encouraging. For example, the 44% increase in Canadian households using the Internet between 1997 and 1998 is very rapid. When we think about it, five years ago hardly anyone was talking about the Internet, whereas now we're up to higher and higher penetration rates. It took telephones over 30 years to reach out as much as the Internet has in about five years.

We don't connect the schools ourselves. We have packages that we propose to the schools. We work with partners, the provinces, the phone companies, and in some cases the cable companies to do it. But there is no country of the size of Canada that has connected all of its schools. We finished it on March 30, 1999. The last school was a three-student school on an island off the coast of Nova Scotia. A dedicated Industry Canada employee rented a boat and took the satellite equipment and some computers and hooked up a three-person school.

All of our libraries in the country are now connected. Not everybody has broadband, not everybody has a computer lab with 16 computers in it, but everybody is at least to stage one.

In the community access program the object is how to make sure that people in rural and remote areas aren't left out of this, because this is one of the great opportunities in it; it really levels the playing field. It gives people the opportunity. If your product is digital and you have access to the Internet, it doesn't matter if you're in Goosepimple, Saskatchewan—you're on Wall Street; you're in the markets of the world.

So community access is about making sure there is at least one site in every community with at least 400 people, where people can go and get access to it for free.

The Chair: Last question, Mrs. Barnes.

Mrs. Sue Barnes: How are we doing in the north of Canada? Is it connected as well?

Mr. John Manley: In the north as well. Every school and many of the communities are connected, and the result in many cases has been quite transforming. In the north, for example, there are wonderful stories of the kids actually being.... Now it's two-way communication.

• 1640

When satellite television arrived in the north it wasn't necessarily such a great thing. What you did is you projected images of a world totally unknown to a northern community, images of wealth and power and all kinds of things. That doesn't do a lot for your self-esteem as a young person growing up in the north.

The Internet has given these kids access to communication out and the ability to describe the world in which they live. And messages that come back say this is amazing, you can see animals in their natural environment that we can only hope to go to a zoo and see. This gives a lot of self-esteem and a lot of opportunity for people living in northern and remote communities. I think it has wonderful potential as a tool for delivering that kind of self-esteem, delivering learning opportunities, delivering distance medicine opportunities, so that people in those communities can really be part of the mainstream of Canadian society.

The Chair: Thank you very much, Mrs. Barnes.

[Translation]

Mrs. Lalonde.

Mrs. Francine Lalonde: You oversee a very large department. Authors and composers, especially those who are members of SOCAN, would be more than happy to relieve you of the responsibility for the Copyright Board, for a number of reasons of which you are doubtless aware.

Right now, the Copyright Board cannot hold any hearings because no two board members are capable of hearing from bilingual or francophone authors without having to resort to interpretation services. As you know, the enabling legislation states that hearings must be conducted without the benefit of simultaneous translation.

The board has been without a vice-chairman since January 31. An entirely new selection process had to be launched, and I was pleased to see that happen. However, if things had been done right the first time, that would have been unnecessary.

Furthermore, the Copyright Board is suffering from a serious chronic funding crisis. The current study on cost recovery methods will not resolve this problem. Since you've held this portfolio, the Board's operation budget has been reduced by 63%, whereas its responsibilities have increased threefold.

Do you agree with authors that responsibility for the Board should be shifted from your department to the Minister of Canadian Heritage?

Mr. John Manley: Matters relating to ministerial responsibilities always come under the Prime Minister's authority.

I wasn't aware that the Board had experienced problems conducting hearings. The next series of hearings are not scheduled to take place until June or July. Very few hearings have been held in recent years. One year, the Board didn't meet at all, while another year, it sat for only 18 days. Therefore, I'm not convinced that it's having problems.

Initially, we held an open competition, but unfortunately, we weren't satisfied with the applications submitted. Therefore, we started over again. I wasn't involved in the interview process, but selection panel members informed me that they had interviewed a number of qualified candidates. I will be making a recommendation to Cabinet shortly, certainly before the hearings get under way. I do not foresee any problems. I've already discussed this with the new chairman and he supports our position.

I have also asked officials from my department to do a study to determine if sufficient resources have been allocated to the board. If an increase is warranted, then we will submit the appropriate request to Treasury Board. However, as I said, the Board has not yet started to implement the provisions set out in Bill C-32.

• 1645

Mrs. Francine Lalonde: Madam Chair, like the authors, we too are wondering what legal opinion the minister is basing himself on to say that the Board, a quasi-judicial tribunal, could operate on a cost-recovery basis. Judging from the various rulings handed down in similar cases, we believe that a quasi-judicial tribunal and cost recovery are two incompatible concepts.

Mr. John Manley: We have yet to make any decisions where this matter is concerned.

Mrs. Francine Lalonde: But other rulings have been handed down.

Mr. John Manley: Which cases are your referring to? The CRTC ruling?

Mrs. Francine Lalonde: The ruling in McGillis.

Mr. John Manley: Did it pertain to cost recovery?

Mrs. Francine Lalonde: As a quasi-judicial tribunal, the board must be able to make decisions, regardless of the whole cost recovery issue.

Mr. John Manley: We haven't yet adopted a policy respecting cost recovery. I believe we've submitted a proposal, but no decision has yet been made.

Mrs. Francine Lalonde: I'm happy to hear that.

With respect to productivity, Mr. Minister, R&D are critically important. Are you not more than a little concerned that since the Liberals were elected, your department's science and technology budget has decreased by over 12% in constant dollars?

Like all committee members, I've heard granting councils lament over their plight. While the government has increased health care funding, generally speaking, the outlook for science and technology isn't quite as rosy.

Mr. John Manley: There's no question that we had to make some difficult decisions in 1995 because of the deficit. A decision was made to reduce the budgets of the NRC and the two granting councils by 14 per cent. Industry Canada's operating budget was slashed by 40 to 50 per cent. Funds were scarce at the time and while the cuts were regrettable, the situation needed to be addressed. Our operating budget has since been increased.

Mrs. Francine Lalonde: You have restored...

Mr. John Manley: Funding to the granting councils has been restored to 1994 levels.

Mrs. Francine Lalonde: That's good. Meanwhile, however, the United States...

Mr. John Manley: We can't fix every single problem at the same time. Our priority was bringing the deficit under control. We realize that our cuts had some negative effects, but they were necessary. It was the only way to resolve the problem. There was widespread political support for these cuts. People understood that everyone was affected, without exception.

The public service here in Ottawa was hard hit by cutbacks. Often, they affected some of my constituents who worked for the federal government. My department's budget was slashed by 40% to 50%, and 25% of the staff was cut. Some of my constituents who work for Industry Canada were laid off. It wasn't an easy time. Mr. Bellemare likely knows some people who experienced the same fate.

The science and technology sector doesn't like to have its funding reduced. However, we agreed that these agencies did important work and that's why funding has been restored. I am certain that having experienced these cutbacks, Mr. Brzustowski and Mr. Carty will tell you that they now spend their money differently. They emerged from this experience much stronger and wiser. Although I would have preferred not to cut funding at all, I do believe that ultimately, this was a useful exercise.

• 1650

Mrs. Francine Lalonde: Productivity in Canada is...

Mr. John Manley: These cuts were necessary.

[English]

The Chair: Thank you very much.

[Translation]

Mrs. Francine Lalonde: By and large, we are lagging behind the United States.

[English]

The Chair: Mr. Jones, do you have any more questions?

Mr. Jim Jones: Yes, thank you.

I have a quick comment, going back a little, on Amazon.com. The thing is, whether they're first or fifth, they're doing all this with no employees in this country and no investment. So I think it is a serious issue.

Mr. John Manley: I agree. I don't agree with you on the issue, or that they won't be first next month. But I'm told they're not there yet.

Mr. Jim Jones: What I'm saying is this is the trend that is happening right across this border now, and I think we should be very cognizant of it.

I have a few questions on the cost-recovery program in Industry Canada. This is an issue of great concern to small, medium, and large businesses that the minister will no doubt be interested in.

How much of the administration budget of your portfolio is financed from cost-recovery programs or user fees? How many cost-recovery programs are administered by Industry Canada? How much has revenue derived from cost-recovery programs administered by Industry Canada increased over the past three years? My final question is, does Industry Canada plan to introduce any new cost-recovery programs this year?

Mr. John Manley: I think it may be more general than what you want. There are some user fees, of course, in some of the services that are rendered in the area of.... It's not spelled out here, Mary. I think we're going to have to undertake to get you some of that information.

Mr. Jim Jones: Could I just send this in a note to—

Ms. Mary Zamparo: Yes, please, and we'll get back to you right away.

Mr. John Manley: Most of them, I think you'll find, will apply in areas such as patent examination, trademark examination—

Ms. Mary Zamparo: Mergers.

Mr. John Manley: In the Competition Bureau, there are fees now for merger reviews and so on. But we'll be happy to make that precise for you.

The Chair: Is that it, Mr. Jones?

Mr. Jim Jones: Well, I have more questions and he obviously.... I'll put them in the same note, because they're all related to cost recovery and what's happening in Industry Canada.

Mr. John Manley: Okay.

The Chair: Lastly, I'm going to allow Mr. Forseth a question before the minister has to go.

Mr. Forseth.

Mr. Paul Forseth: Thank you, Mr. Minister. Looking at part III in the report on plans and priorities for Industry Canada for 1999-2000, on page 63, under figure 9, it looks at a projected plan of increasing full-time equivalence of people working for Industry Canada—an increase of 205 people. And yet, turning over to page 64, we're looking at forecast spending for personnel salaries, wages, and contributions to employee benefit plans, and there's actually a reduction. So we see employees going up, yet the compensation for those employees is going down. You've got two things going in opposite directions. I want you to tell me what policy this reflects or what really is happening here. What's going on in Industry Canada that we have this kind of trend? What is it evidence of?

Ms. Mary Zamparo: In general what's happening in Industry Canada—although I can't explain that seeming juxtaposition of the two numbers, and I'll certainly get back to you on that—is that to the extent it is increasing its employment numbers, it's typically with new programming, such as TPC, the new activities on the connectedness agenda, for example, or new programming initiatives. That's where our numbers would go up. I'll have to get back to you on why the....

It may also be, though, that sometimes it may just be a timing issue. We typically get new money at the very end of the year in the budget, and we try to put those numbers in our RPP, but they wouldn't be in the main estimates numbers because they get voted before the RPP numbers. So there is always that little bit of a lag there of a couple of months, and that's why we then come in later the next year and regularize those numbers through supplementary estimates.

• 1655

Mr. Paul Forseth: I also see in the plans that there's a bump in employee numbers, but then a projected decrease again over the next couple of years.

I just want to ask another question. John McCallum, a Royal Bank of Canada economist, estimated that based on preliminary gross domestic product figures for last year, Canada's labour productivity growth was a mere 0.2%. If this turns out to be the case, obviously this is sending a message that your mix of policies is really not working. So if things don't turn out that well, I ask you what readjustments would you make? If the numbers are saying your mix is not right, what would you be prepared to do? Would you be prepared even to downsize Industry Canada further, or perhaps leave more money in the hands of consumers, investors, and entrepreneurs? Do you have any contingency plan to significantly downsize Industry Canada if the numbers really go sour?

Mr. John Manley: Well, first of all, where I think we should be focusing this whole issue is on standard of living, because this is really where the numbers work themselves out. Personally, I'm frustrated by the fact that every economist not only seems to have a different number, but seems to have a different formula for working it out. I know there seems to be some work afoot by the committee on the question of productivity. If you can shed some light on it, I'd welcome it. But I'm more concerned about what I see as a continuing trend in our standard of living and how that's been declining. I think whatever they think of the numbers, everybody agrees that one of the keys to improving our standard of living is going to be improving productivity. So that's where the linkage is made.

But there are a lot of factors that are connected. When you look at where Canada is doing well and where we're lagging...I'm always prepared to admit that in public policy or environment, there's always room for improvement. There are always things we need to keep doing. But if you look at some of the work, for example, that Porter has done, he says the use of the microeconomic environment by business leaders in Canada lags. He ranks our environment much higher than he ranks the management decisions related to the use of that environment. When you look at the fact that our enrolment in post-secondary education is the highest in the G-7, yet our performance in on-the-job training, which I think is a very important factor in improving productivity, is the lowest in the G-7, this is not a public policy environment issue. This is a private sector issue.

I think at this stage the best we can say is that there's more work that needs to be done in order to get into the cause and effect of some of these issues. I think the issue Ms. Jennings raised with respect to venture capital or risk capital and how it's applied in Canada may also provide some clues to it. Undoubtedly, there are differences of measurement that only the economists and the statisticians could hope to understand. So I don't think there's a simple answer to your question.

Mr. Paul Forseth: Just as a closing comment—

The Chair: No, Mr. Forseth. I'm going to have to let Mr. Manley go now. I apologize.

Mr. John Manley: Let him have a closing comment.

The Chair: Okay.

Mr. Paul Forseth: I just suggest that perhaps the basic cost of doing business is directly related to on-the-job training and why employers don't measure up as well. The environment they're operating in, whether it's property taxes or payroll taxes and so on, makes the cost of doing business too high.

Mr. John Manley: That's an interesting point, because how do we judge that on any kind of objective basis? When you look at the KPMG study, you'd have to conclude that the cost of doing business in Canada ain't that bad compared to the United States. They took into account factors like salaries, municipal and property taxes, and corporate income taxes. So when you put all those factors together, you see that all the locations in Canada come out better than all the locations in the United States. There's a gap of knowledge somewhere that I think we still need to fill in.

• 1700

The Chair: Minister, we want to thank you for being here today and answering our questions. I understand your officials are going to stay. Is Mr. Duhamel staying or leaving with you?

Hon. Ronald J. Duhamel (Secretary of State (Science, Research and Development), and Western Economic Diversification Canada, Lib.): I have to attend another meeting.

The Chair: He's leaving with you as well.

Mr. John Manley: You'll see him again.

The Chair: We'll see him again on Thursday. I want to thank you both for being here. We'll allow you to leave, and I gather your officials will stay. I think that's the plan.

Mr. Bellemare, did you have a question for the officials?

[Translation]

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): The fact that Canadian schools are connected proves that we are developing a very interesting culture. Hopefully, that culture will develop to the point where a small business can also ultimately adopt a high tech culture. On that score, I can only congratulate you.

We note on page 19 of the English version of part III that approximately $300 million has been allocated to Technology Partnerships Canada or TPC. Has this amount decreased or increased every year? Could you refresh my memory and tell me when Technology Partnerships Canada was first introduced?

Mr. Andreï Sluzenko (Assistant Deputy Minister, Industry and Science Policy, Industry Canada): Program funding levels are now being maintained. Initially, $150 million was allocated to TPC and the amount was subsequently increased to $300 million annually.

Mr. Eugène Bellemare: Considering that our partner is our giant of a neighbour, the United States, don't you think this amount is too low and should perhaps be increased, given that, as Ms. Jennings mentioned, people in the United States have been willing to take risks for at least the past 150 years, whereas the same cannot be said of Canada? Here we seem to be turning out administrators instead of risk takers, particularly in the financial sector.

What is being done to increase program funding? It's not a matter of convincing the Prime Minister, the Minister and Cabinet to allocate more money. Surely there must be some way of assessing the economic spinoffs of such a program and of finding out how many small businesses got their start because of it. How can you show the media, the public and the government that this is the right approach to take?

Mr. Andreï Sulzenko: I know that requests under this program far exceed available funds each year. There's no question about that. This is an excellent program, one that produces good results, but the decision to increase program funding is the government's to make. In the last budget, funding was increased by $50 million. We'll have to wait and see what future budgets hold in store for us.

Mr. Eugène Bellemare: Is there some formula for assessing or gauging economic or cultural progress in Canada, one that would show that the government needs to do something to stimulate this sector if the business sector is unwilling to take the risk? What formula is used? Do we weigh our return on money invested, by Bombardier for instance, in aircraft development? Once we begin to see the dividends, then we understand the benefits of investment. However, we need more than that.

• 1705

Have investments by companies like Bombardier produced spinoffs for small companies that have managed to expand by selling to suppliers, much like we see in the United States? In short, do you know of any formulas like this?

Mr. Andreï Sulzenko: The government and our department offer a number of other programs in addition to TPC. The Business Development Bank of Canada also has specific programs targeting high tech and knowledge-based industries. Another of our programs is the Communities Investments initiative. There are many other initiatives aside from TPC designed to foster risk-taking and innovation in the private sector.

[English]

Mr. Eugène Bellemare: Okay, programs and money, fine, but there has to be some kind of way in which you say that culture is developing in the business industries and here is the formula to show that the returns on the investment are both culturally and financially very profitable, and henceforth that's the direction we should proceed in, in greater strides. What are those benchmarks we should work on? Is there a formula, or do we just look around and see buildings go up?

Ms. Mary Zamparo: I think in the case of TPC we don't see that immediate impact because they're long-range investments. It takes a long time for those projects actually to materialize. At the beginning you see the initial jobs come into play while they're in the stage of doing the project, for example, an aerospace project or a research project in the enabling technologies, but it takes a number of years for that project actually to materialize and for the gains to accrue to the company and then for the multiplier effect to be felt.

So the benchmark would be the long-term jobs that are created, the wealth that's created in the community, and the spinoff effects in terms of other business opportunities that materialize. But it's hard to measure them in the short term because those things take a while to materialize. For some of those TPC projects, for example, it might be eight or nine years before the project is actually at its completion and the returns start. So they're long-term projects.

Mr. Eugène Bellemare: Can I continue?

The Chair: This is your last question, Mr. Bellemare.

Mr. Eugène Bellemare: I'll jump a few questions and go to my last question. What's spectrum auction?

Ms. Francine Lalonde: It's your favourite.

Mr. Mary Zamparo: I'll start with the little bit I know about it. Spectrum is access to radio wave frequencies and an auction is a means of allocating that. It's like a privilege. It can be translated into economic wealth, so the government wants to be sure there's an actual market there. It's a very competitive business, and you want to be sure you have some kind of a market mechanism to give access to spectrum so that you have the market mechanism at work, people are paying appropriate prices for it, and there is some competition there, instead of just awarding people spectrum, which they then can basically turn into a licence to print money.

The Chair: Thank you, Mr. Bellemare.

[Translation]

Have you any further questions, Mrs. Lalonde?

Mrs. Francine Lalonde: Yes, I have. Why have funding levels for consumer-related initiatives remained stable or even declined slightly?

• 1710

Mr. Andreï Sulzenko: Are you referring to the budget of our department's consumer affairs office?

Mrs. Francine Lalonde: Yes, funding of all consumer-related initiatives. Could you provide me with a written response?

Mr. Andreï Sulzenko: Yes, I can do that.

Mrs. Francine Lalonde: I know that consumer groups have been having funding problems. I'm sure it's the same everywhere.

[English]

The Chair: Ms. Jennings

Ms. Marlene Jennings: Thank you, Madam Chair.

I did not understand at all the response on spectrum auctions.

Mr. Eugène Bellemare: Same here.

Ms. Marlene Jennings: So I would appreciate it, for my benefit and the benefit of my colleagues on this side of the table and the other, if you could try to explain again what it's about.

Ms. Mary Zamparo: You go ahead. You're the economist.

Mr. Andreï Sulzenko: Our department is responsible for allocating spectrum frequency—

Ms. Marlene Jennings: Radio frequency.

Mr. Andreï Sulzenko: —radio frequency for all kinds of uses. Historically, they allocate certain parts of the spectrum for certain uses. Historically, the demand for such parts of spectrum by the private sector—

Ms. Marlene Jennings: When you say part of a spectrum, you're talking about radio—

Mr. Andreï Sulzenko: I mean different frequency ranges. Historically, the demand has been relatively low. It has been from a few companies that provide services that would use that part of the spectrum. The process was first come, first served. In other words, if there was a demand, a fee would be negotiated with the company that was prepared to provide the service. That's how it worked.

Now we're finding, with the explosion of technologies, the demand in some areas has increased.

Ms. Marlene Jennings: What areas?

Mr. Andreï Sulzenko: I'd have to get back to you on that. I'm not the expert on spectrum.

The auction system is going to be used because if you have many bidders interested in a specific part, the fairest allocation method would be to have an auction system. In other words, the highest bidder who meets the specs would get that part of the spectrum. This is a system that has been used in other countries very successfully, the United States being one. It's not just to raise revenue, but of course that is an issue since it is a public good. It's meant to make sure you have a fair, open, and transparent process.

Ms. Marlene Jennings: Would any company, regardless of whether it was completely foreign-owned, not based in Canada, be able to bid on this spectrum? Could we envision a day when all of the spectrums are owned by companies from outside of Canada? Is that a possibility?

Mr. Andreï Sulzenko: We don't have any of our spectrum folks here today.

Ms. Marlene Jennings: It's a question you can respond to in writing.

Mr. Andreï Sulzenko: We can come back to you on that.

Ms. Marlene Jennings: Thank you.

[Translation]

We can wait for an answer in writing. If it's not satisfactory, we can pursue the matter further. Thank you.

[English]

The Chair: Thank you very much, Madam Jennings.

Before we go, we have the commissioner from the Competition Bureau here, Mr. von Finckenstein. I'm wondering, Mr. von Finckenstein, if you could come to the table. Mr. Keyes had to leave and he was going to ask a question with regard to the direction of the committee—the motion we passed.

I've had a conversation with the commissioner about the motion we passed on our next study on the practices of the Competition Bureau. Mr. von Finckenstein has taken our motion very much to heart and has a brief comment, I hope, on how he can offer assistance to the committee in our study.

Mr. Konrad von Finckenstein (Commissioner, Competition Bureau): Yes, thank you. When I was here before testifying before you, I mentioned I was very concerned about the clear impression of the committee and a lot of witnesses who appeared before you that the act wasn't working and the bureau was probably underenforcing it.

I decided to engage an independent person to look at the area. The areas you were really concerned about were predatory pricing, price discrimination, and price maintenance, in the technical jargon of the act.

• 1715

I want the person to look, first of all, at whether the bill's interpretation of these sections is correct. Is it consistent with international practices? How do other countries look at these issues? Are the enforcement guidelines adequate? Should there be additional enforcement guidelines?

I'm going to have the person take a sample of the various cases we have, so they are dealt with under these sections, and look at what we did. They will look at our analysis and see whether, on balance, in their judgment, we came to the right conclusion. Were we too conservative, too proactive, etc.? This will give me a neutral database from somebody who will look at what we did over the last ten years and say what makes sense and what doesn't make sense, and indicate the areas that need to be improved, etc.

This study is being commissioned and will be done over the summer. Then I will be prepared to table it with the committee, so you can see for yourselves how we look in the light of somebody who has absolutely no....

I'm awaiting a proposal from the vice-dean of one of the law schools, who may be doing this. It's not somebody who regularly does competition law; it's a person who knows the Competition Act and has written about the merger provision but has never done any work in the anti-competitive pricing area or written an article on it. So there's no record of him having taken a position on this issue one way or another. He comes to it with an open mind.

I think that's the key, because a lot of people have written on it, but they have taken decisions either for or against the bill. I'd like to have somebody approach it who has no pre-set view. I'm in the process of negotiating the fee. If that's possible, the study will be done over the summer and I will table it with the committee in the fall.

The Chair: A number of people have questions—not five minutes each, I hope. Madam Jennings, Mr. Shepherd, and Madame Lalonde.

[Translation]

Ms. Marlene Jennings: Thank you, Mr. von Finckenstein. You've already answered one of my questions. Could we have a copy of the invitation to tender that you sent out? Could we have a copy even though the report hasn't been submitted yet, or would that be too complicated?

[English]

Mr. Konrad von Finckenstein: I've written the terms of reference, which I've shared with the chairperson. She has it. I have no problem with distributing it to the parties.

On the proposal, I'm really waiting to see how much money it would involve and how many persons. Also, since it's a law professor, he will probably want to have an economist assist him with it, because some of these issues, as you know, are economic as well as legal, etc.

Ms. Marlene Jennings: Okay. Merci beaucoup.

The Chair: Mr. Shepherd.

Mr. Alex Shepherd: I'm sure we appreciate your initiative here. I guess the obvious concern will be the perception of independence, and so forth. Is the ultimate decision to employ or engage yours?

Mr. Konrad von Finckenstein: I am doing this for the bureau because I'm interested in the outcome just as much as you. I will be tabling it with you. Obviously you can then call the person and question him on his study and his conclusion. If you are dissatisfied or feel there's further work needed, you can commission your own studies on this, etc. But I just thought the best way to start the debate would be to have a neutral database. That's why I'm bringing somebody in who has not worked for me in this area and has no record in this area at all.

The Chair: Madame Lalonde.

[Translation]

Mrs. Francine Lalonde: Is it worth the effort? I agree with Mr. Shepherd. You may have the best of intentions, but to those who don't think you're doing a good job - not you personally, but the Bureau as a whole—credibility will be an issue. I would have been nice to have the minister here when we received that information.

• 1720

Are you happy with the funding you've been allocated? In view of the reforms undertaken, will you be able to meet the demands expressed during the hearings on Bill C-235, or, because of a funding shortfall, will you be unable to provide a satisfactory level of service to people?

Mr. Konrad von Finckenstein: One would always like more money, but...

Mrs. Francine Lalonde: You know what I'm saying.

Mr. Konrad von Finckenstein: In the past, we have had a smaller operating budget. As far as these legislative provisions are concerned, it's not a matter of funding, but a matter of evidence. If we have sufficient evidence, we can investigate incidents. Some of the complaints we investigated in the past did not produce enough evidence to allow us to pursue the matter before the courts. Perhaps our approach is wrong and we are too conservative. We'll review our actions and determine whether or not we took the right approach.

[English]

But in terms of budget, clearly the bill needs more money,

[Translation]

especially today, given that many sectors of the economy have been deregulated and the bureau's jurisdiction continues to expand.

Mrs. Francine Lalonde: That's what I'm saying. You need people. The new legislation enhances the rules of evidence, but you need people to do these evaluations. If these people have to travel, then it would appear at first glance that your budget is inadequate. Of course, you can't admit that.

Mr. Konrad von Finckenstein: If the committee was willing to back a request on my part for more funding, then I'd be very pleased to hear that.

[English]

The Chair: Mr. Forseth.

Mr. Paul Forseth: I'll ask a technical question, not a policy question. Do you think Mr. Dan McTeague's private member's bill was technically viable, related to competition in gas pricing, and so on? When it hit committee, it was shot down.

The Chair: Mr. Forseth, we've had several hearings. I won't go into Mr. McTeague's bill. This is to deal with a motion the committee passed. I'm not going to allow that. Mr. McTeague is not here, and with all due respect—

Mr. Paul Forseth: I just asked him if it was technically viable—

The Chair: With all due respect, I'm not going to go into that. That's been done at this committee. This is to deal with future business, where we're going, and a motion of this committee. I apologize, but I'm not going to start a debate on Bill C-235 this morning.

Mr. Paul Forseth: I'm not entering into debate.

The Chair: We've already had one.

I asked Mr. von Finckenstein to put that forward. It doesn't preclude the committee from doing its own study, as was mentioned. It doesn't set our direction in any way. It's his own audit of his own bureau to let us know what he's doing, in light of the committee's motion.

I want to thank all the witnesses for being here this afternoon and the minister, who had to leave.

The meeting is adjourned until tomorrow.