INST Committee Meeting

STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY

COMITÉ PERMANENT DE L'INDUSTRIE, DES SCIENCES ET DE LA TECHNOLOGIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 30, 2001

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I'm going to call the meeting to order.

Pursuant to Standing Order 108(2), we are considering the economic impact on Canada of the September 11, 2001 terrorist attacks.

I'd like to welcome our witnesses here this afternoon. We're very pleased to have with us the Canadian Chamber of Commerce, Mr. Michael Murphy, the senior vice-president of policy, and Mr. Robert Keyes, the senior vice-president, international division.

From the Canadian Manufacturers and Exporters we have Mr. Jayson Myers, the senior vice-president and chief economist, and Mr. Boudreau, director of policy and research.

From the Canadian Federation of Independent Business we have Ms. Catherine Swift, the president and chief executive officer, and Mr. Garth Whyte, the senior vice-president of national affairs.

I propose we have opening comments from all three groups, and then move to questions together. I propose we go in the order I listed, unless there's another agreement. So we'll being with the Canadian Chamber of Commerce.

Mr. Michael N. Murphy (Senior Vice-President, Policy, Canadian Chamber of Commerce): Thank you, Madam Chair.

It's a pleasure, as always, to have the opportunity to appear before this committee. It certainly gives us pleasure to come before the standing committee today to present the views of the chamber, as you proceed in your consultations on the impact of the events of September 11 on Canada's economy.

As I'm sure many of you know, there has been a lot of discussion with respect to border issues. My colleague Bob Keyes will finish our presentation today by talking in more detail about that. I'm going to provide a very brief overview of the current state, from an economic perspective.

[Translation]

Those in charge of government policy are currently having to cope with considerable pressure and major issues. Although our country's immediate needs require special attention, we have to examine longer-term decisions concerning the economic future of our nation.

[English]

The U.S. and Canadian economy, which was already in a fragile state prior to September 11, will retrench further in the near term. Disruption of activity in the number of sectors will directly undermine GDP in the third quarter, moreover, the accelerating pace of layoff announcements and volatile equity markets will most likely undermine consumer confidence and constrain spending, further impacting output in the near term.

More pronounced weakness in the U.S. economy will dampen demand for some Canadian exports, which account, of course, for 37% of our GDP. The manufacturing sector in Canada will also be impacted, at least initially, by new security measures that have slowed some cross-border trade and have delayed deliveries of inputs essential to the production process. More on that later.

There's no doubt these effects will negatively impact the economy in the near term. The chamber expects economic growth in Canada in the third quarter to be close to zero or slightly negative, and the economy will continue to be adversely affected into the fourth quarter posting negative growth.

It is, however, important to look beyond the short-term circumstances. Canada's central bank has injected substantial stimulus into the economy by cutting interest rates to historically low levels. The bank's overnight target rate now stands at 2.75%. The chamber expects further decreases here before this easing cycle is over.

On the fiscal front, tax stimulus introduced early this year at the federal and provincial levels will continue to work through the economy. Increased government spending for security and defence is pending. South of the border, fiscal stimulus coming from the increase in U.S. government spending will also play a role in spurring economic growth, including here in Canada.

Thus the stage is set for the start of an economic recovery in Canada, possibly as early as the spring or summer of next year, to start. Our expectation, therefore, is for growth in 2002 to average approximately 1.5%, virtually identical to the growth rate expected for our current year.

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It is the view of the chamber that it would be ill-timed to add to these monetary and fiscal initiatives we just discussed, with a direct government stimulus package. Such potentially large government spending initiatives are not needed at this time, and indeed could be counterproductive.

On what is required—and maybe I'll just spend one moment on this—the chamber has produced a set of specific recommended proposals in the tax debt management and program spending areas. All of these measures are included in our prebudget proposal. They are all couched, in very important terms, with respect to fiscal conditions permitting. This applies equally to measures proposed for the next budget, which we have made, as well as for subsequent action.

The underlying theme of this principle, upon which our proposals are built, is a continued affirmation of the very hard work of all Canadians, in the past several years, to move the country away from deficit financing at the federal level. This achievement is now much too important to abandon, and the members of the chamber urge the government to avoid a return to deficit financing. We believe this can be accomplished as we set priorities for the country and keep a focus on overall Canadian prosperity.

I would be pleased to elaborate on our proposals in this area. They're contained in the submission all the members of the committee have.

It continues to be the view of the chamber that government spending priorities must include those areas that can have a direct bearing on our competitiveness as a nation. Resources put into security and building and maintaining critical infrastructure should continue to be a government focus.

Evidence also suggests that successful investment in both physical capital, whether it's machinery and equipment, and human capital, whether it's education and training, as well as basic research and development, the seed for future innovation, are instrumental in raising productivity and overall economic growth. Our submission further details the chamber's recommendation on how spending should be controlled by imposing an annual cap, and by reallocating from lower priorities.

The chamber's members and I would encourage the federal government not to abandon the innovation strategy that has been discussed, but rather to put it into context with today's fiscal realities. I think that's an important context that we'd pleased to talk about.

The chamber looks forward to the release of the government's agenda, particularly relating to skills, learning, R and D, and other proposals it may contain. In addition, we would urge the government to include, as part of its innovation agenda, a discussion of the business environment to be fostered in Canada. Fiscal and regulatory issues, as well as important framework legislation, are vital components in the development of any comprehensive innovation strategy. In the chamber's view, the creation of the right business environment must be a cornerstone objective of the strategy.

Let me now, Madam Chair, turn to my colleague, Bob Keyes, and ask him to update the committee on our work in dealing with the post-September 11 environment.

Bob.

Mr. Robert Keyes (Senior Vice-President, International Division, Canadian Chamber of Commerce): Thanks, Mike.

I'll be brief, given our time constraints. I just want to make five or six points quickly.

In looking at the post-September 11 impact, we obviously know what happened. There were backups, there were delays, and the economy lost a lot of money. But I think it's also difficult to separate a softening economy from the impact of September 11. Of course it's still very early to have definitive numbers.

We know that in the post-September 11 environment, the governments of both countries, through major resources at the border, with the hope of getting things back to normal... These efforts are certainly to be applauded, but we're still hearing complaints from local chambers across the country that Canadian and U.S. authorities do not have sufficient personnel at the border to handle the traffic and cope with the difficulties that seem to arise from time to time.

There's also concern about what comes next. Tomorrow night at midnight the national guard gets pulled from the border. They have been doing the 100% checks at the border, so who knows what the situation might be on Thursday morning. On the extra resources President Bush has authorized for new staff, it's going to take time for those people to be put into place. So I think it is going to bear looking at and watching very closely as to what happens this week.

Also, for security purposes, trucks cannot stop on the bridges or in the tunnels now—no traffic. This may be a result of the most recent threats. I don't have any reports on what that is doing to the traffic situation, but it's bound to have an impact.

There's also concern that the situation is variable and unpredictable. At one hour it may be fine, at another hour it may not.

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Just before coming over I looked at the DFAIT website. There are three areas of major delay this afternoon. Ambassador Bridge is 45 to 60 minutes. Coutts is 70 minutes. Pacific Highway is 90 minutes. So these backups are occurring and they do have an impact particularly on certainty. If you don't know what the situation is, you're less tempted to try to cross the border. For business it's obviously vital, but even for people who are crossing the border to shop or dine or visit attractions, they're not going to take the chance to get caught.

So we're seeing major impacts occurring across the country from community to community. Of course commuters are also seriously disrupted, and our tourism and hospitalities are really feeling the pinch.

With regard to investment, I just want to mention this very briefly. Both our corporate and chamber members are telling us that if the border bottlenecks aren't addressed and the border is not in an assured fluid state, significant investments may well bypass Canada and locate directly in the United States. Companies with distribution facilities here will move them to the other side of the border. That costs money. It's not as much, though, as relocating your complete plant, because you want to provide certainty to your customers.

This is a really strategic issue for Canada as we deal with this post-September 11 impact. I urge the committee to think about the investment situation carefully, because if it bypasses Canada, then all the work we're trying to do to brand ourselves or position ourselves as a place to attract investment into Canada, a launching pad for NAFTA, is going to be wasted.

This committee is not focusing on the idea of a perimeter system, but in the question period I'd be happy to talk about that. I won't go into that now. I'm sure members are aware of the Coalition for Secure and Trade Efficient Borders. We are looking at this issue carefully. We have a document we'll be releasing later this week, in the hopes of stimulating thinking and debate.

In short, in this post-September 11 world we have had a lot of impacts. We're still learning the specific impacts and economic terms, but we have to start thinking outside the box, in new ways, if in the longer term, once we get out of this short-term period of reaction, we're to find a way to manage and mitigate risk, but also to facilitate trade.

Thank you.

The Chair: Thank you very much, Mr. Keyes.

I'm now going to turn to the Canadian Manufacturers and Exporters, Mr. Jayson Myers.

[Translation]

Mr. Jayson Myers (Senior Vice-President and Chief Economist, Canadian Manufacturers and Exporters): Thank you Madam Chair. Thank you for having invited us to present the manufacturers and exporters take on the events of September 11.

As you know, the companies that are members of CME account for 75% of industrial production in Canada, 95% of exports and 80% of private research and development in Canada.

[English]

You're also doubtless aware of the importance of the manufacturing sector to the Canadian economy. This is a sector that accounts for $500 billion in annual shipments and employs 2.2 million Canadians. It's the largest single economic sector of any business sector in the Canadian economy.

Although I have to say that statistics have not yet caught up with the events of September 11, it will be in November when we see the results—the statistical publications in terms of employment impacts or what the impact has been on manufacturing production, manufacturing shipments, and so forth.

But I think we have a fairly good view of what is happening in various sectors of the manufacturing industry. I know you'll be hearing and probably have heard from some very important sectors that are counted within manufacturing—the automotive sector, the aerospace sectors. Both of those have been directly affected by the events of September 11 and the aftermath.

It's also important, as Bob Keyes has said, to put this into context. Although economists are not known for their brevity, I will take you through a few of these graphs just to show you that the economy was weakening before September 11, and the impact of these events will simply be to prolong and to deepen a recession that was already present in the manufacturing sector.

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You can see in the first graph that manufacturing shipments number billions of dollars monthly. You can see the slowdown. I also want to point out one month in 1998 where you see a very sharp decline in shipments. That's the impact of the closure of one plant in Michigan for General Motors. That's the impact that a closure in one company can have across the entire manufacturing sector in Canada. So you can imagine what the impact will be of the production shutdowns, the closures, the lost contracts that we have already seen in the aftermath of September 11. It will be a much deeper recession than we have seen to date in the manufacturing area.

I've given you some graphs of where, on a province-by-province basis, on a sector-by-sector basis, the weakness had already been apparent during the first half of 2001—real weakness in British Columbia, Ontario, and Quebec, the most highly industrialized provinces. The recession up until September really was localized in a few key sectors—the automotive sector, the electronics sector, the wood products sector. But these are also sectors that have a very wide supply chain. So the plastics industry, steel, textile industries, and electronics industries are all affected by a turndown in a major sector such as automotive, for instance. I'll leave you with that for your information.

They're also seeing very high levels of inventory, and companies that have to work down those inventories simply to keep their costs in order. The problem for Canadian manufacturing has not only been production slowing down, but there has been, as a result of overcapacity in international markets, tremendous downward price pressure, as the costs of doing business—in particular over the last several months, energy costs—have continued to increase. It's that cost pressure and the pressure on the bottom line that has forced many companies to innovate and restructure. The dramatic decline in prices and increase in costs over the past several months, since October of last year, has been a major factor also in exacerbating the slowdown in manufacturing activity.

So companies are having to continue to work down inventories. One reason we see such a very rapid response to the slowdown after September 11 in the United States was the fact that nobody wanted to be caught with extra overhead and inventory. So everybody is trying to keep those inventories as low as possible.

A very important fact I want to point out is our export dependence, particularly on the United States. Today 62% of the entire volume of manufacturing production in Canada is exported into the United States. So the U.S. is market number one, and any response to September 11 and any recovery that we will see over the next few months will depend on the economic conditions of our major marketplace, the United States.

I've given you a very brief outline of the outlook before September. I'm not going to go into that, other than to say the production levels had already fallen by 5%. But I think there was a feeling across most sectors of manufacturing that the worst was over and that conditions were beginning to improve. The outlook was for a gradual and slow improvement in production and employment throughout the third and fourth quarters of the year. That outlook of course has had to be revised.

There aren't very many sectors in manufacturing today that have a positive outlook at all. I think right across the industry there is a fairly pessimistic outlook as far as the impacts of September 11 and what is in store over the next year.

We have seen, as Bob has said, a very sharp decline in consumer and investor confidence, both in Canada and in the United States. This has led to production cutbacks, lost contracts. It has led to investment projects being put on hold and to some diversion of investment in manufacturing away from Canada and into the United States.

The downturn has had a direct impact, of course, in the air services, hospitality, and financial services sectors, but also on energy and aerospace. Those were the two areas in Canadian manufacturing that had been doing fairly well throughout the last year. In fact, aerospace had been growing at about 30% above last year's levels. Now this sector too is one in which we're seeing major cutbacks, both in production and in employment, already being planned.

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We will see further weakening in the automotive, machinery, and electronic sectors. I think, on average, right across manufacturing you can expect to see somewhere in the area of a 5% cutback in production volumes in the month of September alone, and of course further pressure on profits, and because of that, further pressures on unemployment as well.

We're also seeing increasing credit problems, companies finding it more difficult to raise money for business purposes, for operating lines of credit as well as for restructuring purposes. We were looking at a recovery across manufacturing by the second quarter of 2002. Although it's really too early to say, because of the uncertainty in the marketplace, we're now probably looking at that recovery being postponed until the first quarter or the first half of 2003. And we are seeing as well, as Bob was pointing out, the uncertainty, the delay, the additional costs, and the problems for investment as a result of delays from bottlenecks at the border.

I provided you an outlook in terms of my crystal ball gazing for the manufacturing sector for 2001. I think we'll probably see production fall this year by 7%, and see 85,000 jobs lost in the sector. This is certainly not a trivial amount in terms of lost production and lost jobs.

In conclusion, just to echo what my colleagues have already said, it's very important to keep our eye on the longer-term issues, the longer-term priorities of innovation and competitiveness. In fact, I would argue these priorities are more important than ever before. It's not just research and development, skills, and tax and regulatory reform, it's also encouraging companies to manage their businesses in a much more innovative way, because it's going to be extremely important simply to survive the next few months, let alone to prosper in the future.

The second area I would encourage the government to see as an urgent priority for taking concrete action is to establish consumer, investor, and business confidence, as well as confidence that we have a secure and trade-efficient border.

In regard to the two objectives, improving physical security, not only at the Canadian-American border, but along our borders, is as important as the economic security, and both have to be seen as complementary. We will not be able to take the steps necessary to improve the trade efficiency of the border unless we address the security concerns that are clear within the United States and in Canada. In my view, if we take steps to build in preclearance systems, to build in systems that take away the bottlenecks from the border, we're also improving security, because we're taking the traffic away from the border and freeing up resources that would otherwise be dealing with low-risk personnel and goods, so they can deal with higher-risk traffic.

I've provided some information here about the steps we've taken to establish the coalition for secure and trade-efficient borders. I hope we'll be able to discuss that in question period, but I'll conclude on a quotation from Abraham Lincoln 150 years ago, who said, in the crisis of his day, “It's important that we all disenthrall ourselves of the drama of current events”. I think that's particularly important today as we step back and try to assess not only what the real economic impact will be, but also the longer-term effects that this will have on the Canadian economy, particularly on Canada's manufacturing sector.

The Chair: Thank you very much, Mr. Myers.

I'm going to turn it over to the Canadian Federation of Independent Business, Catherine Swift, president and chief executive officer, and Mr. Garth Whyte. You may start.

Ms. Catherine Swift (President and Chief Executive Officer, Canadian Federation of Independent Business): Thank you very much, Madam Chair. Hopefully we can present a version of disenthralling with some of the information we have to present to you today.

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Garth and I were first actually going to appear today on competition policy issues, as was originally scheduled, and a couple of my colleagues, André Piché and Stéphane Robichaud, appeared before you last week.

I'd like to compliment this committee on the work it has done on elements of the Competition Act that are very important to our small and medium-sized business members.

In any case, moving on to the topic du jour, we're certainly pleased to be here. What we're going to say to you today is actually quite similar, in most respects, to what we said to your finance committee colleagues yesterday—it just so happened that was the timing of our appearance on a prebudget basis—with, naturally, some information more tailored to your mandate.

As you may be aware, CFIB has currently over 100,000 small and medium-sized business members across Canada, and there's no question the events of September 11 had negative impacts on everyone, and certainly on that constituency as well.

We actually keep tabs in various ways on our members on a weekly basis, and we thought we would do something unusual. We do a lot of surveying of our members, in fact, that's how we form our positions on issues as an organization, but this time, given the uncertainty and unprecedented nature of September 11, we actually opted—and are continuing—to survey our members weekly on their ongoing experience with this.

The most recent data, which goes up to October 22, so it's quite fresh data—we'll actually have more recent data in the next day or so—is contained in this business parameter update, the couple of pages that were handed out to you. What it shows, basically, is that during the week of September 11 and the following week, issues such as sales, border issues, and whatnot were very acute. But in subsequent weeks, our members saw improvement week by week, and we're finding their expectations are actually levelling off now—although we do have comparable data from late August, before the events of September 11.

But we're actually finding there isn't a huge... Expectations have fallen somewhat, but we still see the vast majority of our members expecting this year to be reasonable, in an economic sense, expecting some recovery in 2002, and we see 80% of our members planning to either retain or increase their staff. In other words, fewer than 20% are planning any kinds of layoffs.

Small businesses represent the vast majority of businesses in the country—97% if taken on a business basis—and they represent roughly half the economy, as well. From a job creation standpoint, small and medium-sized firms collectively account for about 80% of net new job creation.

So there is no question September 11 had its impact on the small-business sector, and certain subgroups of it. Our membership cuts across all sectoral elements. Certainly we heard from our tourism members, our transportation industry members, and so on, right away, not surprisingly. But overall, we are seeing quite a resiliency and quite a bit of dogged optimism, I guess you could say, in that sector, which has to be good news. We're continuing to survey on a weekly basis, and we'll be continuing to provide this data for as long as we feel it makes sense.

For some time now, we've liked to refer to our sector as the non-stock-market economy. I think we often see those scary headlines about big business and layoffs, and so on, and that's serious and can't be taken lightly. But what we would like to recommend to this committee, and others, is that we do keep it in perspective, because roughly half the economy is not in the see-saw stock market's daily events, and is holding pretty steady in terms of their expectations overall.

We have three of Canada's most significant business groups here today, and there are others who aren't here. We find an awful lot of efforts are going on right now, committee appearances like this, certain groups doing different kinds of initiatives to try to do what they can constructively to help the situation.

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I think we're also seeing an awful lot of mixed messages go out, and there is perhaps not enough sharing of intelligence and information that we all have individually but that collectively isn't really coming to light.

Something we would like to suggest—and we're using this committee appearance as a means of doing so—is to ask the Prime Minister to call an economic summit. We believe, given the extraordinary nature of our current circumstances—not just in Canada, of course, but around the world—we need to look at the issues we can have some influence on within Canada.

We seem to be focusing a lot, as we must, on what's going on outside—things like border issues and so on. But we also have to focus in a more coordinated fashion on what we can do here within Canada. We would like to call for an economic summit so that we can consolidate and have fewer individual efforts going on. These are maybe quite worthwhile, but if the information resulting from them is not shared with others, I think we're going to lose a lot of opportunity.

There's no better time than now, with our current circumstances, to have an event of this nature; to call together business groups—possibly other key groups that are interested in the economy—and have everybody coordinate the information they have; and to take a more consolidated, broadly based approach to issues.

Some of the things we've outlined in the written material we put before you, but won't be going into great detail about, concern upcoming budget priorities. Some will be of more interest than others, I'm sure, to this committee. But the message we're getting from our members generally, from our research and surveying on an ongoing basis, is “Stay the course.”

We do not want to see, for example, as some of the others have mentioned, any backing off from some of the tax changes already announced, including such things as a 10¢ minimum reduction in the employment insurance premium, for example.

And certainly we do not want to see the government go into deficit. Right now the most important thing to do in our current economic environment is maintain business and consumer confidence to the maximum degree possible. All Canadians sacrificed a great deal to get rid of the deficit and start paying down debt. Going back into deficit, I believe—and our members certainly agree—would not be positive in the least for maintaining the confidence levels of Canadians generally—and not just in the business community.

In terms of the so-called innovation productivity initiatives mentioned already, our members also feel, naturally, one cannot abandon this or neglect it as we go forward. But we have proposed for some time now, and we're reiterating today, a number of low-cost initiatives we can work on to achieve it. It seems whenever we hear about some of these innovation programs they have fairly hefty price tags attached to them. We are going to suggest a number of initiatives today that are low-cost but nevertheless would be very significant contributors to improving our innovation and productivity as an economy.

One example, from which we tabulated and distributed some results early so that we could bring them to the committee is a question we asked our members. Right now we have just under 6,000 responses; we'll eventually have lots more, but we took an early tabulation. The exact way it was asked is outlined before you on the sheet with the pie chart on it. The question was, should government pay for expansion of high-speed Internet capacity? This has been in the news a lot lately. Almost three-quarters of our members are not in favour of that particular initiative—just to give you an example.

Mr. Garth Whyte (Senior Vice-President, National Affairs, Canadian Federation of Independent Business): Does everybody have a copy? We gave you lots of copies.

Ms. Catherine Swift: Did these not get distributed?

Mr. Garth Whyte: Yes.

Ms. Catherine Swift: There is a pile of them that we... Well, we'll make sure that you get it. It didn't seem to get distributed. Okay, some do have it, but we'll ensure... We're having a distribution problem today.

The Chair: Actually, can we have it distributed first at the table? I don't have it; I know I don't have it.

Ms. Catherine Swift: In any case, we'll ensure that it does get distributed.

A voice: They have it now.

Ms. Catherine Swift: Our members also certainly agree with continued spending—and obviously increased spending in some areas, such as security—but they very much believe this can be reallocated more or less within current fiscal plans.

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Our members are opposed to subsidies to business. They have been consistently, and the most recent data reinforced this yet again. The basic message, as I mentioned earlier, is “Stay the course.”

Garth, would you continue, please.

Mr. Garth Whyte: Thank you.

I won't take much time, but first I think it's worth reiterating that when we ask our members what they think about their economic circumstances, we're not asking them to look back on data or wait for data. We're asking them: “What do you expect for your business? What are your employment plans for your business?”

When we give you this information, they're saying—and they're experts in that area—“Here's what we expect for our business and what we will be doing with our own businesses.” We hear a lot of people giving analysis, but I think it's important, when we ask half the economy, that they're saying: “Here's what we intend doing in the small and medium-sized enterprises.”

We made our presentation yesterday, and we're making it today, and we met with Minister Stewart today. When we continue, we're hoping that people will say: “Okay, this is what SMEs are saying. What should we do to respond to it?” We have given you, basically, the submission we gave yesterday to the finance committee, which I'm hoping you have a copy of. I think you do have a copy of it.

You can see, again, we did a very fresh run. We sent this out to 100,000 members and asked them about the federal mix and how they see it. It's virtually the same as it was in 1998. We have about 1,200 responses now, and we should get about 10,000 when we're done. They're saying—priorities again—one, on debt reduction, don't go into deficit; two, stay on your tax plan; three, only 15% said “Increase spending.”

When we talk about that further—I'm not going to go through them, but I encourage you to read it—we talk about their income tax, their tax priorities, about employment insurance—and I'm skimming through very quickly. But I do want to mention—because I noted that when the committee asked what governments should do, you included municipalities—that the Federation of Canadian Municipalities presented yesterday before we did. We weren't at the table with them, but they have been lobbying quite heavily to get money for infrastucture spending, and we agree with that. We agree there should be more money for infrastructure spending.

But they also say they should have their own taxes. We have a major concern with that. We strongly disagree and oppose a municipal GST or a municipal income tax. We're currently surveying our members—and we'll be doing releases across the country in every city—and trust me when we say our members are vehemently opposed to giving tax powers to municipalities so that, as the mayor of Winnipeg said, they could be similar to the city of Phoenix and get 40% of their revenues directly from the taxpayer. That's one thing you shouldn't do.

What we've been proposing are low-cost initiatives, and we think there are a couple things this committee and the industry portfolio can do. We gave...

Again, we ran it off very quickly, because we've been doing committee presentation after committee presentation, but I'm hoping you have this in front of you. We ran this off on our small-business priorities, and also SME productivity priorities. This first graph represents 23,000 responses. We asked of course about total tax burdens there, but there are issues this committee can deal with.

Government regulation of paper burden is the number two issue; it's significant. Speaking of low-cost initiatives, one issue is regulatory reform and the reduction of paper burden. Again, the OECD is currently drafting a report on the cost of regulatory burden in Canada and the impacts on productivity. To me, this is a natural for the industry committee to look at.

Another issue was cost recovery. If you look, in the second graph, at SME productivity priorities—again, Finance and other departments will deal with payroll taxes, income taxes, and paying down the federal debt—item two is to ease the burdens and regulations and make fees and penalties more equitable. One out of four of our members talked about fees.

The finance committee came out with 12 recommendations. But we believe this committee has a role to play in that area. We think—and we're members of the Business Cost Recovery Coalition, and Jay is the co-chair of that committee—this is a natural for the industry committee to look at, in many respects.

First off, I think the industry committee should look at the cumulative impacts of fees at the municipal, federal, and provincial levels. Believe it or not, no one looks at them.

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When we did our study, the Business Cost Recovery Coalition found just under $2 billion in fees were collected in 1996. After you discounted the lost revenues and all the other things, the total revenues to government were $230 million. We estimated a loss of 23,000 jobs. We had all sorts of productivity problems—paying ice-breaking fees for icebreakers on Lake Superior, and there were no icebreakers on Lake Superior. We had members waiting two years to get the Pest Management Review Agency to give certification for an automated scarecrow.

We can go on and on and make it a cost-recovery presentation, but I think the industry committee can look at this issue and also look at industry fees. The Department of Industry has done some very good things and led the way in how they can try to roll back fees. And we believe this should be a committee process.

We have a list on page 7 of some low-cost initiatives, like the reintroduction of the new hires program, an excise tax in micro-breweries, a mechanics' tools tax deduction... R and D “Light”. Many of our members do not get the R and D tax credit, because if it's $10,000 or less, accountants are informing them not to bother doing it, because it costs them $5,000 in advice to apply.

Simplify the auto expense tax deduction. We've talked to Revenue Canada, and I'm on the revenue agency advisory committee, with the ministerial advisory committee. There's one where we could help right there in saving time and money and paper burden.

We think there's a list of low-cost initiatives this committee can come up with.

The things you are doing on competition policy are excellent; the way you monitor banks and their lending to SMEs is excellent.

One of the things we are concerned about, post-September 11, is a tightening, a credit crunch. That's the worst thing that can happen at this time.

We're treating this similarly to what happened with the ice storm. We've written to the banks, we've written to Revenue Canada: let's not hurt cashflow, let's not squeeze at this particular time. If there is a cashflow issue or if communities are having hard times at the border, or if they're with trade or manufacturing and they're late in some of their remittances, let's at least give them a break and figure it out.

An issue we're all going to roll our eyes over is when I say internal trade barriers are critically important. We keep talking about Canada-U.S., which is very important, but we have a huge problem east and west. Can we not finally, post-September 11, go after this issue? Can we not sign a labour mobility agreement, which was supposed to be signed on July 1?

On your government-aligned initiatives, we've been working very closely with the minister on BusinessGateway.ca, Onsource Canada. Those types of initiatives are fantastic.

Bob, Jay, Mike, and I are all on the Coalition for Secure and Trade Efficient Borders. We had 40 groups around the table. One of our concerns is that the industry representatives are not part of the security committee. We know Minister Manley used to be the minister for the Department of Industry, but there's not really an industry presence there. We know Minister Martin is there, but he's looking at the fiscal side of things, the tax side. Who's representing industry at the table?

Let's talk about immigration. You would think that's just an immigration issue, and people talk about security. Our fastest-growing problem has been the shortage of qualified labour. Immigration policy is critical to our members, as is trade and investment. So we have to have some way of finding the security agenda to dovetail with the business agenda and the open border agenda.

I also think we need to report accurate information. Again, we're talking of borders, and as I said, I'm on the committee. I'm also on the ministerial advisory committee, and we just met with Minister Cauchon last week. I talked to the Canadian Trucking Association, and trucking is up to 90% right now. There aren't lineups at the border. Consumer traffic is down to 40%, but there are no lineups. If you want to check it, go to the Canadian Customs and Revenue Agency website, and check out the border lineups, and you can tell right now what they are. There are certain areas, yes, but we have to be careful not to shake the alarm bells too much.

The other thing was about reporting of information.

The Chair: Mr. Whyte, I'm going to have to ask you to wrap up. We'd like to get to questions.

Mr. Garth Whyte: This says “23,000 jobs at risk?” This was released by ACOA. This makes us angry. We had a lot of explaining to do in the media. And then the report says that the minister said it's speculative, at best. Then don't release the report.

• 1605

I will wrap up quickly. We're going to present to the committee 192 pages of one-liners from our members about what the government should do. I'd like to close with what one member captured very briefly as to what it should do.

I think we just have to move forward—business as usual, both in our business and our personal lives. There's not much I can do as an individual or as a small business, except move forward. And since I think governments at any level should also be treated as and act as a business, they too should move forward—plan for the best and prepare for the worst. But standing still should not be an option.

Thank you.

The Chair: Thank you. The clerk will accept that on behalf of the committee.

We'll now return to questions. We have another group of witnesses at 4:45, so I'd ask members to keep that in mind with their preambles and their questions.

Mr. Penson, please.

Mr. Charlie Penson (Peace River, Canadian Alliance): Thank you, Madam Chair.

To the group today, welcome. I thought the presentations were very good.

I think it has been brought out pretty clearly that there was a bit of a downturn starting before September 11, but we've had a terrific external shock to our system here in North America. I guess the last one of those was in 1973, with OPEC, and we know how long it took to work through that.

We had the Canadian automotive associations here this morning, and one of the people making presentations suggested that in light of George Bush's announcement yesterday and what was leading up to that in terms of security issues surrounding the Canadian-U.S. border, Canada had better be inside the security perimeter rather than outside. I guess it is really a rhetorical question, but isn't that our number one priority at the moment, trying to ensure that we have access to that huge American market?

Ms. Swift, I know you've surveying your members, but it would seem to me that the United States is essentially saying that if you don't meet our criteria, or if you don't work with us on this, you're not going to be part of our plans, and essentially saying that the border could be more of a problem. So your surveying probably wouldn't have picked that up at this time. Is that true?

Ms. Catherine Swift: Many of our members are very actively doing business with the U.S., and this issue has come up many times as potentially a very serious threat to Canada. Of course, Canada is the U.S.'s largest trading partner too, so it's not just a one-way street, but there's no question that we are so heavily dependent on their economy that we could not afford to be outside any so-called perimeter, or however you want to refer to it.

I know the work of the border coalition is looking very much at that issue, and we'll see what happens, but there's no question that it is a pressing issue. There are a lot of issues we have to deal with, but that is apparently a very pressing one, on which I think we need some leadership.

Mr. Garth Whyte: The business community is going to be having a statement on Thursday, collectively, and one of the messages, really, is that we have a great relationship with the administration there, but our problem is Congress, and the problem is what they read in the media and what Jay Leno says—the perceptions, not just the realities.

Part of it is that we have to get our act together collectively. I think we are doing that with the business community, and we have to do so collectively with the government and get that one message down there, loud and clear. A lot of mixed signals are going there from everywhere in terms of our security and all these things, when it's not nearly as bad as what's being reported.

Ms. Catherine Swift: This is just one element of it, that mixed messages are going out and causing problems. So this is also why we believe we need to have a proper economic summit, with all the key players involved, to discuss this kind of thing, and other issues. Among the bunch, this is actually one of the more coordinated elements of the whole situation we find ourselves in right now.

The Chair: Mr. Keyes.

Mr. Robert Keyes: I would just add that I totally agree with my colleagues. I'm also part of something called Americans for Better Borders Coalition, which is chaired or coordinated through the U.S. Chamber of Commerce, and on those calls, it's exactly the same thing. Some of the messages are wrong, and we are delivering messages to our business colleagues in the States to make sure that some of these misimpressions get corrected, because it's very tough to turn around the words of Jay Leno and others when those get embedded in one's mind.

Madam Chair, when you were in Washington last week, I'm sure you heard some of the same things.

The Chair: Yes. Actually, I met with the U.S. chamber.

Mr. Myers, please.

• 1610

Mr. Jayson Myers: I'll echo what's already been said. I think the security issue is paramount in the minds not only of people in government in the United States but also the business people and American consumers as well. So we have to address both the security issue and the trade and the commerce issue. We can talk about this as much as we want, but the best way to do it is to show by concrete action that we take the security issues very seriously. That means not only in terms of legislation but also actually enforcing regulations that are already on the books. A part of our concern here is to improve the enforcement of existing regulations and customs and immigration and overall security.

Mr. Charlie Penson: Thank you.

I want to pick up on the CFIB's presentation about the regulatory burden. And I agree with you: when you talk to small business it's disproportionate how much money they have to spend meeting regulation. There have been some studies that suggest there's over a $100 billion cost to Canadian businesses per year. I know some businesses suggest that the regulatory cost is actually higher than their tax cost.

Is there something we can do in terms of this committee? I gather that's what you're saying, that some type of a committee could be struck to review, first of all, redundant legislation and regulation. Is that what you're suggesting in your presentation?

Mr. Garth Whyte: Yes. We're throwing the idea up there and we want to see who will grab it. Our members strongly support a regulatory budget. Many of us again were involved with a lot of regulatory review processes. The problem is when the champion leaves so does the process, and what we find is you have to ensconce it into almost a committee process so that it's done on a regular basis. One, look at the severity of the problem; two, find some quick hits, get rid of some of those redundant regulations that are hurting; and three, have a strong process that reviews new regulations that are coming up. There's a whole pile of issues we believe can be done. The finance committee on cost recovery alone, which is a subset of that, made 12 recommendations, but we believe this committee is a natural for this.

Mr. Charlie Penson: They're all things we can do now, at a time when we are struggling, that would help relieve some of the pressure on our Canadian business. I gather that the interprovincial trade issue is the same suggestion.

Mr. Garth Whyte: Very much so.

Mr. Charlie Penson: We can address that.

Mr. Garth Whyte: Someone has to push that internal trade agenda.

The Chair: Thank you very much.

Mr. Murphy, please.

Mr. Michael Murphy: I was only going to briefly add, Madam Chair, that I just had the opportunity last week to discuss this very issue as it came up in the context of both the border discussion and the innovation discussion.

The question of regulatory efficiency came up and brought to mind the efforts that Parliament had taken in Bill C-62, which I believe was the last effort, if I'm not mistaken, on the Regulatory Efficiency Act. I've gone back and taken a look at it, and looked at the thrusts that were behind the act. There was a great deal of merit there in terms of the opportunities it would have presented. Unfortunately, the will just wasn't there to get it through, much to the chagrin of many of us in the business community. I know many of our members who were in the room with me were strongly endorsing taking another run at it. I'd do it with some trepidation, but I might want to get involved.

Mr. Charlie Penson: Thank you.

The Chair: Thank you.

Mr. Myers.

Mr. Jayson Myers: Madam Chair, maybe to make that link between regulatory reform and some of the concerns raised after September 11, one of the issues we're dealing with on the part of a number of members is they're finding products being imported into Canada marked “made in Canada” where in fact they're coming in from China or from Latin America.

In terms of building that common level of confidence in the security around the Canadian-U.S. border, I think the issue about enforcing existing regulations and to take a look at reviewing regulations that are on the books so they can be enforced so we have that level of security is extremely important. We're caught between the Department of Finance, which hasn't changed the regulation since 1932, and CCRA, which says they can't enforce the regulation because the Department of Finance hasn't looked at it for 70 years.

• 1615

The Chair: We appreciate that very much, Mr. Myers. It's obviously something the committee has discussed, and will continue to discuss, so your comments are very helpful. If you have any specific examples, other than what you've suggested, we'd appreciate those, actually at a later date if there's not time today.

Mr. St. Denis, please.

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Thank you, Madam Chair.

Thank you, witnesses, for being here. I know we don't have that much time, so I'll try to make my few questions very short, and perhaps you could make the answers as short as you can.

I think Ms. Swift and Mr. Keyes both mentioned in their remarks innovation, but... So does that mean just that you're against the broadband initiative, or does “but” mean something else? What does “but” mean, when you support innovation but?

Ms. Catherine Swift: Low-cost initiatives to further innovation productivity, or however we want to refer to it, is what we've been focusing on. The regulatory reform is the perfect example of that. When governments do that successfully, they actually usually ultimately end up saving money.

Mr. Brent St. Denis: So the innovation more or less equals regulatory reform.

Ms. Catherine Swift: In part.

Mr. Robert Keyes: I'd refer you to Mr. Murphy on the issue of regulatory reform.

Mr. Michael Murphy: In terms of the innovation agenda, I think it has the potential to be quite broad, and we're actually suggesting that there are many issues that could come under the rubric, including a serious look at some of the key business environment issues. So is it just equal to one particular proposed initiative that we haven't yet seen announced? No, I wouldn't say that.

Mr. Garth Whyte: A very quick answer is that a report your industry department and the finance department put together in 1995, and again we co-chaired this, has a list of a whole bunch of innovative ideas in many different areas on what can be done. I suggest the committee revisit these things. And I'll give a copy to the committee.

Mr. Brent St. Denis: I don't want to enter into a debate over the issue of broadband. I represent a rural area, so obviously I wouldn't agree with some of the comments made, at least the suggestion here.

Ms. Catherine Swift: They are actually largely rural—we have a disproportionately high number of rural members.

Mr. Brent St. Denis: I believe that. The background doesn't mention that what it means is real-time education, going to university in real time, health services and so on.

Ms. Catherine Swift: I think the question is timing. Now isn't the time.

Mr. Brent St. Denis: Sure. In terms of the suggestion about an economic summit called by the Prime Minister, is there something about the current budget consultation process that you don't like?

Ms. Catherine Swift: No.

Mr. Brent St. Denis: To me, that's what the summit equals.

Ms. Catherine Swift: We think there's a lot of intelligence out there. The thing is to get it together. It's bopping around, a shotgun approach: there are all types of things burbling around, but it's not as coordinated as it should be. The budget process generally is fine, but these are different times.

Mr. Brent St. Denis: Is it not coordinated in the business community or on the government side?

Mr. Catherine Swift: Both. I think both, and to bring all the key players together and have a more coordinated approach seems like a winner to me.

A voice: Bush did it.

Ms. Catherine Swift: Bush did it, yes, it's true. Interestingly enough, he did it very shortly after he had a big meeting with a lot of key business players.

Mr. Brent St. Denis: There's probably merit to that suggestion.

I think there'd be few who'd disagree that if we can avoid going into a deficit, we should certainly do so. I don't know any more than you do about what the minister will say when he has a budget, and what it will look like next spring at the end of the fiscal year, but if there were a surplus, would you criticize? If there were a surplus at the end of the fiscal year, would there be some who would suggest the tax cut wasn't enough or something else?

Mr. Michael Murphy: The current fiscal year?

Mr. Brent St. Denis: Yes. It's a big if.

Mr. Michael Murphy: There will be a surplus in the current fiscal year.

Mr. Brent St. Denis: So what will the reaction be?

Mr. Michael Murphy: For the first six months of this year we're showing about—I didn't look at the numbers today—I think it was pretty close to $11 billion in the first six months. Corporate income tax numbers in the first six months were up considerably. I think it's about $11 billion in the first six months. Is it going to hold at that level through the balance of the economic year? Probably not.

Mr. Brent St. Denis: I'm trying to anticipate what the reaction might be to that, because some will say—

Ms. Catherine Swift: Obviously the top priority is paying down debt, so if there is a surplus and it goes to paying down debt, you'll hear a lot of applause from our constituency.

Mr. Michael Murphy: I think the issue, rather than what do they say, what do we say, is we can't undermine what limited confidence there is right now. And the way to undermine that confidence is to go into deficit and go off the tax plan among our members. If at least we're noticing that we're staying the course, that's the key issue.

• 1620

So with a surplus, at least you're staying the course, and you're saving something for a rainy day. But to go in the opposite direction, and there's a lot of pressure on the finance minister to increase spending significantly, we think that would... We remember the last recession. We remember some of those issues, and it wasn't fun. That's the way to do it. We have a dividend right now, and the dividend is that we're not in deficit. This is not a message just for the federal government; it's a message for all governments.

Mr. Brent St. Denis: Fair enough.

If there's time, I'd like another chance to ask questions.

The Chair: Sure. Thank you, Mr. St. Denis.

We're going to move on to Mr. Bergeron.

[Translation]

Mr. Stéphane Bergeron (Verchères—Les-Patriotes, BQ): Thank you Madam Chair.

I can't help but comment, in connection with the last question from Mr. St. Denis, that when there is a surplus, it is definitely indicative of a planning problem or conflict, particularly when the surplus is much larger than forecast in the Minister of Finance's budget, a situation that has recurred for a number of years now.

In any event, I believe Mr. Myers mentioned a short while ago that the forecast was that 83,000 jobs would be lost. Is it possible to specify over how long the period these 83,000 jobs will be lost in Canada? Is it over one year or over two years?

[English]

Mr. Jayson Myers: Let me say, and it maybe comes back to your first point, that under very different economic conditions and the shocks we're seeing, the uncertainty makes it impossible to provide any real forecast, whether it's with regard to economic growth, jobs, or whatever.

Of the layoffs that have already been announced, the majority will not take effect until the end of the year. I think we will certainly see more production closures, particularly on the part of smaller suppliers. The employment forecast I gave was one that took that into account and looked at the entire year of 2001 in relation to 2000. But we likely will not see most of the job cuts taking place into November and then into December and the end of the year.

[Translation]

Mr. Stéphane Bergeron: We know that approximately one out of every three jobs in Canada depends directly on exports. We also know that the United States is our largest trading partner and that approximately 80% of Canadian exports are to the United States. I believe that someone mentioned a few moments ago that it was essential to efficient borders, in terms of the flow of goods, people, services and capital.

Having said that, I realize that you are making a number of requests. Each person here, in his or her presentation, formulated a number of requests to the Government of Canada in an attempt to lessen the impact of September 11, although we know that we could see the slowdown coming well before September 11.

It would of course be too easy for me to quote President John F. Kennedy, who said, "Ask not what your country can do for you; ask what you can do for your country". I know that private companies are not philanthropic organizations, but I would like to hear from you, since you represent all the corporate federations or associations, whether you have adopted an approach or found a way to try to postpone the layoff for as long as possible. We know for example that if we want to keep the economy rolling, consumption is essential, and that for people to consume, income is needed, and that the higher the level of unemployment, the lower the level of consumption.

What is your position concerning the job losses or layoffs?

[English]

The Chair: Mr. Myers.

Mr. Jayson Myers: To begin with, you're right, business isn't a philanthropic organization. If businesses aren't keeping their bottom line, they're not in a position to employ. But that being said, I think it's more difficult today than ever before for businesses simply to cut back on unskilled workers they need and count on. It's not a nice thing to do, first of all, but it's certainly not good for long-term business simply to cut back. I think businesses are looking at ways of ensuring that they're not cutting out those people they will need in order to grow as the economy picks up.

• 1625

We can talk about business very generically, but the companies we all represent are members of our association because they want to be very active in improving not only the policy environment but the regulatory environment. For instance, with regard to the way the border works, our companies have been very active working with CCRA, the customs agency, in developing new programs that would assist the preclearance of goods and people moving across the border, such as the customs self-assessment program or the CANPASS systems that have been implemented at the border.

The border problems are not new. We've had delays at the border for a long time. We've seen the volume of traffic at the border expand by over 10% a year, but, up until very recently, we were seeing the same number of agents operating at the border. So we were experiencing delays and considerable cost before September 11.

There are a lot of recommendations and good ideas and initiatives that are already underway with the participation of business aimed at improving preclearance, taking the paperwork away from the border, and freeing up the bottlenecks in that respect. Certainly, you will see business associations taking a leading role in making those recommendations and working with government to improve the situation.

The Chair: Mr. Keyes.

Mr. Robert Keyes: I think if business confidence is there, that's a large part of the issue. But it's confidence in your own business plans and that you're going to get an economic return. But it's also confidence that we have a border that works. So you're going to continue to make the investment and the business decisions that will allow you to go forward.

In terms of layoffs, let's not forget that there has been a very significant economic shock. Business is down in a lot of sectors. Last Thursday I took the airport bus from Pearson to downtown Toronto and talked to the driver. His business is down 60%. There were 11 people on that bus at prime time. That reflects half-empty airplanes and people not moving around. So you can only go so long before you have to make layoffs. I know for the companies that are handling the bus transportation out of airports in Ontario, 25% of their workforce is gone. That's not going to come back until business traffic comes back up.

The Chair: Mr. Whyte.

Mr. Garth Whyte: We gave you a message here. The sector we represent is holding its own. We weren't at the airport but we were in Thunder Bay. When we were in Thunder Bay, the business community was asking, what can we do? During the last recession they cut their own salaries before they cut their people's. It's harder to cut someone when you know them and their family. They're doing more than their fair share.

As an organization, we've talked to 3,500 small businesses a week. Catherine, myself, and other leaders in our association have talked to our field people saying, you are going there to do more than just talk to business. You shouldn't talk about doom and gloom every time you meet with a business, because the worst thing we can do is create a real the-sky-is-falling scenario. You can't be—and I get teased about this word—Pollyannaish. You can't be overly optimistic, but at the same time we can make things worse if people stop spending and creating jobs. So that's what our members are doing.

The Chair: Thank you very much, Mr. Bergeron.

Did you have a question, Mr. Savoy?

Mr. Andy Savoy (Tobique—Mactaquac, Lib.): Thank you very much, Madam Chair.

With regard to our domestic situation, a poll was released today indicating that for 87% of Canadians their spending habits are the same as they were prior to September 11. It was very encouraging. Nine percent spend a little less and 4% spend more, but for 87% it has been about the same, which I was certainly very encouraged to see.

• 1630

I've been of the mindset since September 11, or shortly thereafter, that we have to look at not only moving our security agenda forward, but by the same token, moving our commerce agenda forward at the borders. I have a border riding, so it certainly has a huge impact on me and my constituents.

But in discussions with people who have been to Washington, and understanding the mindset of Congress, having been there myself recently—prior to September 11—someone mentioned a very interesting point, that they don't think the problem is in the business community and the exporters within the U.S., but at the political level. It's a bunker-down mentality.

My initial goal, that we should move both agendas forward at the same time, may not be realistic now. We may have to address the security issues first and foremost and then move the commerce agenda forward, not in conjunction but shortly thereafter.

I'd like to have your comments on that, especially the responses from the U.S. on that. Is that fairly accurate, or do you think we have other alternatives?

The chambers first, because they would have...

The Chair: Mr. Keyes.

Mr. Robert Keyes: I think the two agendas do go hand in hand. There is a very explicit linkage between facilitating trade but assuring security.

Economically, we're very important to the U.S., and the U.S. is very important to us. We coalition members met with Ambassador Cellucci, and certainly the security imperative was there, but he also recognized that we don't just stop and then deal with trade later, because neither country can afford to do that.

I think we have to find a way to make these things go hand in hand. It's not a question of, well, let's just deal with this and we'll move on later, because we are so economically intertwined that we have to make both of these agendas work.

The ideas we're talking about and looking at to make the border work better, to think on a perimeter, to do what we have to do to share information, to move checks away from the border, all these ideas that are being talked about, are going to both facilitate trade and enhance security. So I don't think it's a sequential thing. I think it's—

Mr. Andy Savoy: In parallel.

Mr. Robert Keyes: Yes, in parallel.

Mr. Andy Savoy: Okay, anybody else?

The Chair: Mr. Myers.

Mr. Jayson Myers: I agree that the two have to be seen as complementary. We have to realize that we're dealing not only with physical security, but with economic security across North America as well. The point has been made a number of times that if we don't deal with the economic security as well, and that if we do see trade, flow of goods and people, constricted at the border, the impact of that on the well-being of North America as a whole can have a far bigger impact than any physical security danger.

The Chair: Thank you.

Mrs. Swift.

Ms. Catherine Swift: I'll just echo briefly that they're part and parcel. The two issues are too integrated. But if I can reiterate, the need for some kind of summit, or whatever you want to call it, with business leaders, government, political leaders, is reinforced by your comments yet again, because there isn't enough coordination.

There are a lot of good things happening, but they're often separate from each other, and I think it's important to connect up a lot of these initiatives.

The Chair: Mr. Keyes.

Mr. Robert Keyes: But make no mistake—and I know it's a trite phrase that has been used over and over—that the new lens for our U.S. friends is security. In their minds, that security has to be there. We can't forget that.

The Chair: Thank you.

Thank you, Mr. Savoy.

Mr. Rajotte, please.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Madam Chair.

I thank all of you for coming today and for your presentations. I appreciated the comments very much.

You're all correct to say there was a slowdown in the economy before September 11. I believe the last time Mr. Myers was here, he predicted the slowdown would occur primarily as a result of the manufacturing sector slowing down.

This slowdown has been deepened and expanded by the events of September 11, particularly with some industries, if you look at the airline industry, tourism, and aerospace. This is going to result in these industries, particularly the airline industry, seeking some form of government assistance or another.

• 1635

I understand most of your groups are typically against government subsidies to businesses, but are these exceptional circumstances in which your members would agree that some form of government assistance should be provided to certain sectors directly impacted by the events of September 11, or would you tend to stick to your position that all or many industries have been affected, and therefore trying to pick between one or two or a few is just not the right way to go?

Mr. Garth Whyte: We surveyed our members and asked what government short-term policy should be, as a result of September 11, and 22% said yes to giving subsidies to business, and 67% said no. That's in the documentation you have before you, figure 7 of the business barometer and figure 1 of the other report. I think that says it in spades.

There can be some targeted relief, perhaps, but we have members who have airlines that are competitive right now. Some people are hiding behind the smoke of September 11. There were problems going into September 11.

If there are new demands on airlines, perhaps security measures and things, then yes, but in terms of bailouts, the answer is no, from our members' perspective.

Mr. James Rajotte: So if more airport personnel are required, more security personnel, they'd be fine with that, but not in terms of a loan or a bailout.

Mr. Garth Whyte: Right.

The Chair: Mr. Murphy.

Mr. Michael Murphy: Thank you, Madam Chair.

I would just add very briefly the general view, and it's interesting how, when you talk about the subject of subsidization specifically, it's very much akin to the processes you go through in terms of decision-making with respect to program spending or other spending by government. One of the things that we've come to think about in this context is looking at productivity enhancement and competitiveness in the economy and using those as benchmarks to make those kinds of decisions.

You do that on major expenditures. So if you can pass those kinds of tests... We've made no secret of the fact that, whether it's related to research, infrastructure, health care, or education and training, those would rank very high on the productivity and competitiveness scale. The same thing would apply. Spending is spending. So we often come back to that.

The principle of subsidies is a subject on which our members expressed themselves quite clearly at our annual meeting this year in Winnipeg. I don't think there's any real appetite in terms of saying, as a general rule, business subsidy is a good thing. I don't think that's there.

Are there some specific exceptions here, given the awfully different circumstances created by the September 11 issue? Certainly there are, and I think we're quite prepared to support that in that context, but again, I always back up to the question, what are you benchmarking those decisions against? That's where we start, anyway.

The Chair: Thank you.

Mr. Myers.

Mr. Jayson Myers: I'd just comment that I don't think it's in the interest of any company to receive money that cushions them from responding to market conditions. Given the extent of those sectors that are going to be affected by September 11, and given the importance of all these companies restructuring their businesses in response to the changing market conditions, I really don't think it's in the interests of those companies to receive public funding.

To echo Mike, though, there are specific circumstances where I think government can step back and ask whether it is in the public interest as a result of the new demands being imposed on companies as a result of September 11, where government assistance, government funding might be applicable. Certainly I would think it's in the public interest to provide enhanced security, and that's one area where some support might be necessary.

The Chair: Thank you.

Thank you very much, Mr. Rajotte.

Before we close this session, I want to go back to a couple of earlier comments and clarify something for the record. With all due respect to you, Mr. Whyte, when you said that there's a lot of misinformation going around, I think there is a lot of misinformation going around, but in fact there are waits taking place at the border right now that are not acceptable. In fact, prior to September 11 there were waits that were not acceptable. So when CCRA posts on their website that there are no waits every four hours, or whatever time they're picking, I think we have to be clear.

• 1640

I think Mr. Keyes can speak to this on behalf of the chamber and the border community businesses and chambers he's heard from. Indeed, we had Ford and all the automotive companies earlier this morning before the committee. They very clearly stated that this was a problem prior to September 11, and indeed it's been a problem since September 11.

For example, the engine that's produced at the engine plant in Windsor for Ford must be dropped into a truck coming off an assembly line four hours later in Michigan. That plant was closed down for an entire week, and both facilities were closed down because they couldn't meet that target. This has now resulted in increased inventories, which is resulting in increased costs, thereby reducing the efficiency of a just-in-time delivery system. Down the road, this may affect investment decisions in Canada.

That being said, I did have the opportunity to go to Washington last week and meet with a representative from the United States Chamber of Commerce who's co-chairing Americans for Better Borders.

Security and trade do go hand in hand, and I think you've made that clear. We also have to look at the fact that security is not just security as to the way we feel, it's security in our infrastructure, it's security in the way we do business, and it's security in the way trade moves. There are a whole number of possibilities and elements where we could actually lay out a plan. Maybe, Mr. Keyes, you could speak to this.

I know that yesterday the bridge and tunnel operators association laid out a seven-point plan that the coalition should take a look at. It addresses a number of concerns, particularly fears in crossing at the border. It looks at and compares our situation to the tunnel between Britain and France, where they have the reversal of inspection, so goods moving through there have been inspected before they enter. It also addresses the necessity for the pre-clearance of goods to keep low-risk and high-risk travellers separate.

There are plans being made, and I agree with Ms. Swift that we need to come together. We need to seize the agenda of Canadians and bring forward a series of steps the Americans will accept, addressing the security issues to ensure that trade continues. I would just like your response to that, Mr. Keyes.

Mr. Robert Keyes: I think you've hit the nail on the head. We've been thinking with a very traditional mindset, but we have to start thinking outside the box. That is what the coalition we're all involved in is working on. We'll have some ideas laid on the table on Thursday, and there are more to come.

As we look at this border issue, we have to find a way to make sure that the low-risk, legitimate traffic of people and goods moves and that the system focuses on and mitigates the high-risk issues. That's the whole security lens we're all concerned about. In part, I think that will have to mean moving things away from the border. That's going to require different attitudes, it's going to require regulatory change, it's going to require new infrastructure, and it's not going to happen overnight. There are elements in place that we can move on, and there are plans that are going to take a longer term to come to fruition. The business community is quite prepared to sit down and go through these things because it's our economic lifeblood and it's the country's economic life blood.

You're absolutely right. This security theme is a thread that runs through so much of everything we do. I'm with you.

The Chair: There's a real security imperative. No one wants to be fear-mongering, but there is a fear factor related to why people are not travelling, even if it's just a fear of being held up going back into the United States by two or three hours.

Mr. Robert Keyes: That's what I meant when I referred to the uncertainty. If you think you might be delayed, you're not going to go that way. If you think the Queensway is going to be tied up, you're not going to go that way. You're going to find some other route or you're not going to go.

The Chair: It's a big concern for businesses in Canada and the United States that have used just-in-time and that are working together.

I would also ask that you consider tabling your report, which the coalition is going to release on Thursday, with the committee.

Mr. Robert Keyes: Absolutely.

The Chair: I do hope that we'll have the opportunity to have further discussions. We take your suggestions here today very much to heart, and we look forward to your report.

Mr. Keyes.

Mr. Robert Keyes: The report on Thursday is going to have some fairly general stuff in it on principles, but I think we do lay out some specifics. We've also got three working groups, on customs, on transportation, and on security and immigration. Some of the stuff that is going to come out, where we start to get down to brass tacks, will be of interest to the committee. I'm sure we'd be happy to come back.

Thank you.

The Chair: Thank you, and I want to thank you all for being here.

We do have another set of witnesses, so we're going to suspend the meeting for 60 seconds to exchange witnesses.

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• 1647

The Chair: I would ask members to resume their seats and our new witnesses to take their places at the table. I'm going to resume the hearing.

Thank you very much.

We're now pleased to welcome the Canadian Steel Producers' Association, Mr. Barry Lacombe, the president; and from the Mining Association of Canada, Mr. Gordon Peeling, the president and chief executive officer, and Mr. Dan Paszkowski, the vice-president of economic affairs.

I would propose that we have opening comments from each, hopefully no more than five minutes. Then we can move to questions if that's possible, beginning with Mr. Lacombe, please.

Mr. Barry Lacombe (President, Canadian Steel Producers' Association): Thank you very much.

On behalf of the Canadian Steel Producers' Association we want to thank you for this opportunity to discuss the industry's economic conditions and cross-border trade between Canada and the U.S., including the consequences flowing from the tragic events of September 11.

We really appreciate the fact that you're doing this so that the government can respond effectively to challenges and consequences created by the post-September 11 environment.

Unimpeded cross-border steel trade is essential to the Canadian industry. The Canadian and U.S. steel markets are integrated. The steel trading relationship between Canada and the U.S. is unique in the world. It is balanced. It is customer-focused, and companies on both sides of the border have operations in the other country.

• 1650

Let me give you some examples of the importance of Canada-U.S. steel trade. Canada-U.S. steel trade is roughly in balance, with each country exporting about $3.5 billion annually to the other country. Canadian exports to the U.S. represent 30% to 35% of Canadian shipments. U.S. imports into Canada have increased by 62% over this same period and now account for close to 20% of Canada's apparent domestic consumption of steel.

Canadian producers share ownership of U.S. sources of supply, and American mills share ownership of Canadian sources of supply. They participate in joint ventures. It has been estimated that for every dollar of Canadian exports to the U.S., Canadian mills spend $1.20 to $1.40 in the U.S.

This balance is unique, as I've said, worldwide. It's also unique because a vast majority of Canada-U.S. steel trade consists of truckload shipments of steel products made to order and delivered on a just-in-time basis, rather than large boatload shipments entered for sale at practically any price. There is significant trade in steel products, which are exported for further processing, returned, and then re-exported in a finished form. Steel producers in Canada and the U.S. operate in the same commercial context, with similar cost structures and common standards and product specifications.

As we look at the situation, as you all know, the market situation for Canadian steel producers was already difficult, and September 11 has made that even more difficult.

We believe that one of the things this committee can look at, because we think what has happened post-September 11 highlights this, is the whole Canada-U.S. trading relationship. We have a number of issues that we believe should be addressed in that context. Clearly, border issues are an immediate and number one priority, but there are other issues that need to be addressed in the context of the Canada-U.S. trading relationship. Let me give you some examples, and then I'll briefly outline what we see as being important priorities.

Unfairly traded imports continue to put pressure on both Canadian and American steel markets, depressing prices and affecting the financial results of the industry. The recent U.S. International Trade Commission decision was welcomed because it found that flat products had not contributed to injury of the U.S. industry. However, 44% by volume of Canadian exports to the U.S. were found to have contributed to injury. The potential diversion of exports bound for the U.S. market to the Canadian market in light of the recent U.S. International Trade Commission injury finding against several countries... This is compounded by recent CITT findings that run counter to those of the International Trade Commission. It might also be noted that because it was a general safeguard investigation, the International Trade Commission applied a higher injury standard than that applied by the CITT and found that it was met.

There continues to be substantial world steel overcapacity, frequently supported by direct and indirect government assistance. This helps perpetuate the pattern of unfairly traded steel entering the Canadian market. Canada and the U.S. must act together to ensure that the integrated steel market is not continually depressed by unfairly traded steel and to ensure responsible free and fair steel trade between Canada and the U.S. In saying this, the Canadian steel producers support rules-based free trade, and they're ready to compete in the market with fairly traded imports.

So what do we see as the agenda? We see immediately ensuring no disruption to the flow of low-risk goods between Canada and the U.S. Our attention needs to be focused on ensuring security and providing the U.S. with confidence in Canadian actions, while at the same time ensuring that U.S. actions to address the consequences of September 11 do not result in border delays that could potentially affect Canadian investment and jobs in Canada and Canadian communities.

We also believe there needs to be continued improvement in Canada's border operations, and, as others have said, we have contributed to the blueprint and are working with CCRA on this. The CSPA is a member of the Coalition for Secure and Trade Efficient Borders and is working with the coalition to develop specific recommendations in this area.

The bottom line is that we have to work to develop our own border and improve the movement of goods through it, and we have also to deal with the U.S. The critical thing for the U.S., since trade and security are in tandem, is making sure that they have confidence in the Canadian border so that they're not taking measures that impair the flow of goods.

• 1655

We also think there has to be immediate government attention to ensure that Canadian steel exports are not affected by recent U.S. International Trade Commission injury findings. This includes the general safeguard findings as well as those on wire rod. We believe that in thinking about the Canada-U.S. relationship, the whole of the trading relationship needs to be examined, not just the border, although the border is currently the most pressing and important.

We believe that Canada and the U.S. must act together to ensure that the integrated steel market is not continually depressed by unfairly traded steel and, as I've said, to ensure responsible free and fair steel trade between Canada and the U.S. We think there has to be enhanced Canadian government attention to the steel trading relationship and measures that will strengthen it.

First and foremost is greater understanding and recognition by both governments of the integrated nature and importance of Canada—U.S. steel trade and the benefits that accrue to the industry, employees, and communities on both sides of the border. We think it also includes Canada and the U.S. working together to ensure equally effective trade laws and processes in both countries and moving together to improve their effectiveness to ensure a level playing field in the integrated market.

If Canadian trade laws are less effective than U.S. trade laws, investment, jobs, and opportunity will flow south, and we have to make sure that our trade laws are up to the task.

We have to have measures in place to ensure that one country is not side-swiped by actions taken in the other to address offshore unfairly traded imports. We have just gone through a major trade investigation in the U.S. The whole purpose of it was to address offshore imports entering the U.S. market. Nevertheless, we got caught up in it. Our trade laws and processes need to be modernized to reflect the realities of international steel trade and, I might add, international trade in general.

We think that the most important thing that can be done for innovation is to eliminate the capital tax. We think that's very important.

Finally, we think there has to be increased government recognition of the importance of steel to the economy, the number of jobs it creates, its contribution to communities across the country, the fact that the industry has invested $4.7 billion in new technology and equipment over the past six years, and that industries up and down the supply chain depend on steel products.

In summary, our view is yes, we have to immediately deal with the border. That's going to require actions in Canada and with the U.S. We should use this also as an opportunity to look at the overall trading relationship between Canada and the U.S. and the factors that are influencing it both positively and negatively.

Thank you.

The Chair: Thank you very much, Mr. Lacombe.

I should have introduced as well Mr. Donald Belch, the director of government relations for Stelco, who is with you. I apologize, Mr. Belch. And as a constituent of Burlington, I apologize to Ms. Torsney.

We're now going to move on to the Mining Association of Canada, Mr. Gordon Peeling, the president and chief executive officer, and Mr. Dan Paszkowski.

Mr. Gordon Peeling (President and Chief Executive Officer, Mining Association of Canada): Thank you, Madam Chair.

Honourable members, ladies and gentlemen,

[Translation]

Thank you for having invited me here today to share some thoughts with you about the economy and competitiveness in the Canadian mining industry. My name is Gordon Peeling and I am the president of the Mining Association of Canada.

Our organization is the national association for the Canadian mining industry. Our members work in exploration, extraction, smelting and refining. Our members produce most of the industrial metals and raw materials in Canada.

[English]

I'll very quickly give you a statistical overview of some of the parameters of the industry. We directly employ 401,000 people, which is 1 out of every 37 working Canadians. We account for 13% of total Canadian exports valued at $49 billion down through the value-added chain, and 69% of total annual port volume comes from this industry and 58% of total annual rail freight revenue, according to the latest statistics. We represent three of the top 10 leading industries in total factor productivity growth over the period 1984 to 1998, triple Canada's total economy in terms of its productivity growth record. We're also collectively the ninth largest R and D sector investor in Canada, responsible for $325 million in annual research and development. That sets out the economic dimensions of the industry.

• 1700

What coming to grips with the tragic events of September 11 and their impact on the economy has done for us is move what had been a slowdown into a rather accelerated slowdown in the economy and in demand for our products. It has had a direct impact on the economy and has also moved security and defence issues up to the highest priority for government attention.

But I do not want to lose sight of the fact that the industry was experiencing a slowdown. In actual fact, we'd had quite an out-of-character business cycle from 1997 on, because of the Asian crisis. Although the economic conditions in North America were quite positive, the mining industry, as reflected by metal prices, did not really participate. The demand for products was there, but the price was not, by and large, except for a few minor spikes in the nickel price over that period.

Although things had been improving towards the end of the year 2000, they did slow down into 2001, with the meltdown in the high-tech sector, due to a general sort of slowdown of the economy—particularly in the U.S. over the summer—and conditions exacerbated by the September 11 events.

To give you some recent examples, you may note if you've been looking at the business press recently that most mining companies are reporting at minimum a 50% reduction in profits in the third quarter due to outright losses. So we've had a tough business situation made that much tougher.

For example, the average price of nickel in the third quarter was 34% lower than last year; copper is down 21%, its lowest level since 1999; zinc prices are down 30% and at their lowest level in history. As a result, jobs have been lost, and mines are being closed. There was the announcement today of Nanisivik on Baffin Island closing. Hudson Bay Mining and Smelting announced late yesterday that its Ruttan mine is closing 18 months earlier than expected as a result of the economic conditions and the expectation that those conditions are not going to improve very quickly.

For us, the next six months are critical for recovery in metal prices, which will be dependent upon the recovery and the overall economy and economic activity around the world.

Turning to the economy, we certainly want to give you a message that the government cannot lose sight of the fundamentals that need to be addressed in the economy, even though, as I say, security and defence issues have moved up as a priority. I would remind you that the Governor of the Bank of Canada, reflecting on the speed of an economic recovery, stated, “How quickly growth will resume will depend crucially on geopolitical developments and on how soon consumer and business confidence returns to normal.”

That is certainly true for our industry. While the economic outlook remains uncertain, we encourage governments to work to ensure that Canada... Particularly, this government must create an investment-friendly environment that encourages both foreign and domestic owners to develop globally from a Canadian base. We cannot set aside the agenda. We must be able to do a number of things and achieve a number of objectives at the same time.

So we encourage a continued focus on trade liberalization. That includes the multilateral attempts at the Doha meeting coming up. We encourage a furthering of bilateral relations, or hemispheric relations, in terms of trade liberalization.

Although we don't have the same issues to the depth the steel industry has with respect to the United States, that is still our most important market. Some 80% of everything we produce in the minerals and metals business is exported out of this country; 80% of the 80% goes to the United States. We compete with the rest of the world for that U.S. market, and we must be in a competitive position to do so. We have seen that position erode in recent time.

Let me turn to another major policy issue—climate change—because it is also on the horizon with the Bonn agreement being factored into the Kyoto protocol. We are committed to helping Canada achieve the objectives of those agreements.

• 1705

We are below the 1999 levels in our greenhouse gas emissions as an industry. I think we're in a good position to try to achieve reductions all the way through to the year 2010. But the policy instruments the government chooses, if it ratifies Kyoto—and we assume the Government of Canada will still keep that question for 2002—can either further hurt or hurt tremendously our competitive position, because, as I say, we compete against the rest of the world for the U.S. market, and a good chunk of our competitors will not have any obligations with respect to Kyoto. We do want to keep that in mind.

There is an element of regulatory competitiveness that the government must also keep in focus. There again, we do not want the government to lose sight of its ongoing agenda. We want, and encourage the government to continue, to eliminate duplication of activities among departments and enhance the process of harmonization between federal government and provincial and territorial jurisdictions.

We also think there is considerable scope for improving interprovincial trade and removing barriers there. It is a sad comment to say that we have a better trade deal with the United States than we do between any provinces in this country, and that hurts us. It does not put us in the best of competitive positions in either attracting investment into this country, creating jobs here, or taking advantage of market opportunities elsewhere.

Turning to the economy and restoring fiscal health, when the Minister of Finance appeared before the finance committee in June 2000, he stated:

There is recognition that when you have a national debt as big as ours, the more you pay down the debt, the better it is.

We are very pleased and are very supportive of the government in achieving a pay-down of the debt. We indeed think that should still remain a priority for the government going into the future.

We also think the government should maintain its focus on achieving the $100-billion tax-cut program that was in the October 2000 economic statement. We believe those tax cuts should be extended to include the resource sectors. The mining industry was left out of that 7% reduction. We think that puts us in a very negative competitive position. Those tax cuts should be extended to the resource sector, including the mining sector.

One of the reasons for that, too, is that we are one of the few industries in this country that operate in remote and rural areas. We offer opportunities to our first nations and aboriginal communities for skills development, economic growth, and wealth creation. We need to be in a competitive position to do that.

Canada's mineral tax regime is under intense pressure from competing jurisdictions that have become more tax competitive than Canada. The speed and extent of corporate tax reductions in other countries, combined with the growing mobility of capital in the global economy, pose a serious challenge to domestic mineral development and to Canada's future economic growth and performance. We cannot lose sight of our need to be competitive in positioning this economy to be in the best possible position to take advantage of the next upswing.

In conclusion, for us the issues of September 11 have certainly exacerbated and have probably extended the difficult period we will have to live through and in which we will have to adjust in terms of our industry's competitive situation. We're a price-taker in the international marketplace. We do not set the prices for our products. They're set on the basis of supply and demand internationally. We have to compete on costs.

In helping the industry compete internationally, we believe the federal government should focus on promoting change within Canadian institutions to improve the government's knowledge of global challenges. It too must be competitive within its operations. It must create a more efficient regulatory process, including enhanced harmonization. It must reinforce the plan for debt reduction by clarifying the targets and making stronger commitments to allocate funds for this purpose when surpluses are available. It must limit spending to areas of the highest public priority, particularly those that strengthen the economy and enhance Canada's long-term international competitiveness. Of course, we do realize that security and defence must be factored into this.

In terms of improving our mining tax regime, we feel we have to have the corporate income tax rate reductions that were provided to other parts of the economy extended to the resource sectors.

The government must continue to reduce the federal corporate tax rate to open up a clear Canadian advantage. It's simply not good enough to be on a level playing field with the United States. Ideally, we should be in a better position so we can attract investment into Canada.

• 1710

I have attached to the back of our paper the recent report of an article by Jack Mintz, which shows that the mining industry in Canada compared to its counterpart in the United States is at a significant disadvantage.

The Chair: Mr. Peeling, I'm going to have to ask you to wrap up so we can get to questions.

Mr. Gordon Peeling: I want to say I agree fully with Mr. Lacombe on reducing capital taxes. They are a tax on productivity and a disincentive to innovation. Capital taxes need to be removed and we need to reduce profit-insensitive taxes and user fees.

I'll stop there.

Thank you very much, Madam Chair.

The Chair: Thank you very much, Mr. Peeling.

We have about 20 minutes, members, for questions, before the bells will go. Unfortunately, we're going to have a vote. Originally we thought we could go a little bit past the time. I have five people who want to ask questions, so without long preambles we each can have about four minutes.

Mr. Penson.

Mr. Charlie Penson: Thank you for coming, gentlemen, to help us with this.

It seems to me what I'm hearing as a theme that's starting to develop here is that our number one priority, essentially, is to secure that access into the United States market, as it is a very big market for us. But after achieving this there's lots of work that can be done right here in Canada to use some innovation, if you like, on how we handle things like interprovincial trade, regulatory burden, and so on. So it's becoming pretty clear, I think, that we need to focus hard on becoming more competitive by setting the framework right here in this country.

I want to pick up on the trade liberalization aspect of it. Mr. Lacombe, if you're suggesting that we should try to open up the NAFTA agreement, I'm wondering if this would be a good time. And strategically, when we're thinking of trying to harmonize some of our policies and develop a new border protocol, I wonder if you think it would be a good time to ask the three partners if they would open that up and look at some harmonization of trade law as well.

Mr. Barry Lacombe: I'm not sure if NAFTA would be the way to go. That's one route. You could do through discussions between Canada and the U.S.

What turns out to be really important, however, is that I think the tragic events of September 11 have highlighted the importance of that trading relationship with the U.S. and a number of factors that need to be considered once we're considering the immediate concerns with the border.

I don't think we can sustain trade laws in Canada that are less effective than those in the U.S. Anyone looking at the integrated North American market, particularly in light of the international trading situation in steel, would say I should invest in the U.S., not Canada.

So I think there is an agenda. I'm not quite sure if it's better done through NAFTA or bilaterally, but I think we do need to work on that trading relationship and the institutions and infrastructure around that trading relationship with the U.S.

Mr. Charlie Penson: In terms of the trade law you're referring to with dumping and countervail, you talked about your industry being an integrated industry with the United States, which I believe is true, as it moves by truck over that border many times a day. Wouldn't it be better to try to advance the idea to drop the trade law between the two countries? It's not required in an integrated business environment like we have.

Mr. Barry Lacombe: I think we would still want to have ways of ensuring free and fair trade between Canada and the U.S., so we think there would still need to be something there. We think there may be less litigious and less costly ways of dealing with it, but—

Mr. Charlie Penson: No, but I'm saying no dumping legislation.

Mr. Barry Lacombe: Right. And if you don't have any trade remedy laws, what you then have is unfair trade, because companies would in fact be bringing product into Canada and selling it on a dump basis or on a subsidized basis.

So I think what we need to do is have laws that are equally effective, and as part of that have laws that enable either country, in a less costly and less litigious way, to deal with unfair trade that may be emanating from the other country.

The Chair: Thank you.

Ms. Torsney, please.

Ms. Paddy Torsney (Burlington, Lib.): Thank you.

Mr. Lacombe, you certainly have brought lots of ideas to us, except the big hinge is the Americans responding, and that's a bit of a challenge. I'm not sure how we always get their attention. Some of the presenters this morning talked about having access basically cut off until things are already in place. So I don't know what your organization is doing with your American counterparts, but certainly that would be part of it.

• 1715

Secondly, today we had somebody who suggested that we should look at a 5% tax cut for investments in new equipment. I know you said that you were $4.7 billion over the last six years in new equipment, and certainly I've been in to some of the plants and it's quite impressive. I'd ask both groups, would that be good timing?

The other thing that struck me, Mr. Peeling, when you were talking about low commodity prices, is I was thinking the steel producers were probably pretty happy about some of those lower prices. I'm not sure how we reconcile both of your issues there.

Lastly, in terms of actual concrete measures at the border in terms of moving the products through more quickly, I wonder if you've been looking at new technologies, new ways of shipping to try to see what the options are, if we can get both borders to agree on some new technology for screening of shipments and for sealing of shipments before they get to the United States.

The Chair: Thank you very much, Ms. Torsney.

Mr. Peeling, please.

Mr. Gordon Peeling: Let me first respond that for us in terms of mining machinery equipment or technology, there is a provision for accelerated capital cost allowance within that. For example, in 2001, mining, including the oil and gas extraction industries, so lumped together, was forecast to invest more than $30 billion on construction machinery and equipment, representing roughly 16% of forecast capital investment in Canada this year.

It's estimated that $1 billion of investment in mining and primary metals increases demand for goods and services by $1.3 billion, representing a revenue base ultimately to government, then, of $2.3 billion. So for every billion dollars we invest, it creates demand throughout the economy.

We do have provisions that recognize that investment, because it's through the investment in mining machinery and new technology that in actual fact you improve productivity and you encourage innovation. After all, how is innovation captured at the level of a firm? It's captured through new equipment and machinery, new software, new hardware put in place. There are provisions there.

We do have one issue that we think needs improving besides the removal of capital tax, which is, as I say, a disincentive as far as that uptake of new technology is concerned. The issue is that within that innovative agenda, it is overwhelmingly focused, in terms of your R and D treatment, in terms of the tax provisions, toward new products. We invest heavily in new process technology development, not new product development. That's not recognized equitably by the tax system.

The Chair: Thank you very much, Mr. Peeling.

Mr. Lacombe, briefly please.

Mr. Barry Lacombe: Yes. I'll quickly run through these.

In terms of a close working relationship with the U.S., we do have a very close working relationship with our U.S. counterparts. But I totally agree with you, the trick is how are you going to move the U.S.? I think we just have to start trying to do it.

In terms of the immediate border issue, I think the first thing is to ensure that they have a level of confidence in what Canada is doing so it doesn't spill into the 49th parallel. Beyond that, I think we have to start discussing these things with the U.S., and my sense is that Canada-U.S. trade has not received the kind of attention that it should really have been receiving, given its importance to the Canadian economy.

In regard to a 5% tax credit on new equipment, in front of the finance committee we've advocated a similar kind of thing for the last couple of years. Let me say, though, I think our priority would be removal of the capital tax, first and foremost, before the 5% tax credit.

In terms of concrete actions on the border, we've been working with CCRA on pre-clearance, its smart border initiative, the use of technologies. It would be nice, and again this goes to your earlier point about getting the U.S. moving... We did sign the border accord with the U.S. back in 1995. Canada's been ready to move on it, but the U.S. has not been moving as quickly as Canada has. I think that's the nub of the issue here, what we can do to ensure that the kind of trading relationship we want to have with the U.S. is secure.

The Chair: Thank you. Thank you very much, Ms. Torsney.

Four minutes please, Mr. Bergeron.

[Translation]

Mr. Stéphane Bergeron: Thank you Madam Chair.

Thank you for having accepted our invitation to attend these hearings. My question is for Mr. Lacombe. I want to be sure that I understood your presentation properly. We want to draw a parallel with the immigration situation. You may well wonder why I would draw such a parallel, but I think it will become clear in a few moments.

• 1720

I heard Mr. Penson repeatedly say this morning that it is important to make sure that the borders remain open and that the free flow of goods between the two countries continues. Basically, Mr. Lacombe, are you saying that the United States considers Canada a sieve for the dumping of steel, and that therefore when there are countries which, if I may say so, "dump" steel into the US market, they are afraid that there may possibly be dumping in the Canadian market which can then very easily move across the border into the United States and that therefore it is necessary after a fashion to create a kind of North American perimeter to prevent dumping, both in the United States and in Canada?

Current United States legislation prevents dumping much more effectively than in Canada. Lastly, are you recommending that a kind of perimeter be established within which there would be uniform or harmonized Canadian and American legislation in terms of countervailing action and measures to prevent dumping?

[English]

Mr. Barry Lacombe: What we're suggesting, Mr. Bergeron, is that we need equally effective trade laws and processes in Canada and the U.S. That we certainly see as being a requirement. And we are struck, as you know from recent events in particular, and as I indicated in my remarks, at how the U.S. International Trade Commission, on a much tougher injury standard, could find evidence of injury for certain products in the U.S. when the injury could not be found for those same products in Canada, and yet the impact on the industry was much the same, taking into account the relative sizes.

In terms of words, I think vocabulary is quite important here, and I worry a little about words like “harmonization” and those kinds of things. I think what we're really saying is we need to have equally effective trade laws and processes in both countries. We think there's an opportunity to sit down with the U.S. and begin that kind of discussion. We think as a first step we should take a look at our own laws and processes and see what can be done to make them more effective.

Ultimately, we would like to have a situation where we can be assured of free and fair steel trade between Canada and the U.S., given the importance of each country to the other, without the costly and litigious processes that we currently have to go through. So that's what we'd like to see happen, and we think it reflects the reality of the integrated Canadian-American steel market.

[Translation]

Mr. Stéphane Bergeron: Basically, you are saying that it is important to try, by stiffening Canadian law, to reassure the Americans so that they will stop including us in all the investigations being conducted against countries that are dumping into the American market.

[English]

Mr. Barry Lacombe: What I'm really saying is that what we need to have is equally effective laws, otherwise you're going to see investment decisions in the North American Canada-U.S. market shifted, because people will be saying the U.S. is more effective, let's say in this example, in dealing with dumped or subsidized imports that are disrupting and distorting the market, whereas they're not as effective in Canada. That's really what we're talking about. We need to have equal effectiveness. There are many ways you can get there. It doesn't necessarily mean harmonization, but it does mean equally effective. And right now we're of the view that the laws and the processes are not equally effective between the two countries.

The Chair: Thank you.

Mr. Bagnell, briefly please.

Mr. Larry Bagnell (Yukon, Lib.): I guess we can all agree that the big issues are the border and these ridiculous trade sanctions by the United States. I'm going to leave those aside, and I have one question for each of you. It's a short one, and maybe you can keep to a short answer and we'll stay on track.

In mining, is it safe to say that maybe unlike in some other industries, the border or even trade sanctions are not the biggest issues in northern and remote Canada, at least where I come from, the Yukon, where the biggest issues still might be government regulation and infrastruture?

My question for the pipeline is we're looking at the biggest project in history in the north, $20 billion for a gas pipeline, and I'm shocked that the Canadian and U.S. steel industry can't produce it. They have to go to Japan. Isn't there any way that we, working together, could get more of that market? That's what the producers who've done the $100 million feasibility study have said.

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The Chair: Mr. Peeling, and then Mr. Lacombe.

Mr. Gordon Peeling: Yes, I'll be very brief, or try to be brief.

The answer is yes. The border is not the major issue for us. It's government regulation, infrastructure, those sorts of issues. But there are clear differences in that. When we signed the free trade agreement with the United States and then moved to NAFTA, prior to that about 40% of all trade actions in the U.S. were in the minerals and metals area against Canada. They disappeared because the U.S. chose to expose its industry to international competition and force adjustment on that industry. I believe that they have not taken that same decision to the same degree with respect to their steel industry. Consequently, they still are engaged in a lot of trade-restrictive activities that impact on the position of the Canadian industry. There is a difference there.

For us, it is government regulation, efficient regulation. We're not taking away from the objectives of regulation, but we think the government does need to be efficient in its application to continue to attract investment here.

The Chair: Mr. Lacombe.

Mr. Barry Lacombe: I'll just say I'll make my response and then Mr. Belch would like to say something on this.

The answer is yes, of course the Canadian and U.S. steel industries can provide the pipe that's needed for the pipeline.

The Chair: Mr. Belch.

Mr. Donald K. Belch (Director, Governmental Relations, Stelco): That's the issue I was going to address, because there are some who have suggested that it was not available in North America. There's a process underway in the U.S. where they're trying to get the specifications changed. But you can obtain the pipe that's required here in North America. We have plants in Ontario and we're joint partners with a plant in Alberta. The plants in both those provinces could make the pipeline that's required.

The Chair: Thank you very much, Mr. Bagnell.

Very briefly, Mr. St. Denis.

Mr. Brent St. Denis: Thank you, Madam Chair.

Thank you all for being here.

I will be brief. I know the bells will be on us shortly.

I have two quick questions for the Mining Association and then one short one for the steel.

You mentioned the Mintz report, Mr. Peeling. We don't hear that much about the Mintz report here. I'm wondering, are you hearing of things that are going to be implemented, or are you just covering your bases, so to speak, by raising it?

Mr. Gordon Peeling: Of course that has set in train the direction of tax reform here with the last budget and the simplification of the tax system. The Minister of Finance offered to continue discussions with our sector with respect to how we might be engaged in this process in the future in terms of a reduction, basing it on the Mintz report, which was only partial. It did not look at mining royalties at the provincial level, so there's a gap there.

Why I referred to this latest example in the National Post of Mintz is that Mintz has now been able to take a broader look. There is a gap: he puts the level of tax netting out subsidies at 40.6% in Canada, and 27.6% in the United States. So we carry a significant competitive burden. Yet we overcome it because we are more productive than our United States counterparts are. We're more innovative. We're in the top ten in both those categories in Canada. But we are not well positioned for meeting that future competition and taking advantage of the great resource base in this country.

Mr. Brent St. Denis: Thank you.

I have a short question for the Steel Producers' Association on the border issues. Unlike the mining community, you are very much involved in cross-border trade. Are you experiencing at this immediate time, in the wake of September 11, any significant change in the time it takes to get your materials across the border, or delays caused by other procedures that have been implemented?

Mr. Donald Belch: The time it takes to cross the border has been lengthened. So what usually has happened is that either we or our customers are carrying more inventory than we used to, so that works against the whole concept of trying to be very efficient in our supply. It also causes us to be concerned that future purchasing decisions will be made by U.S. companies sourcing it closer to home, sourcing it in the U.S. rather than Canada. That's why the border has to be a secure issue for us. It is of very great concern.

Mr. Brent St. Denis: So you have seen a change since September 11, or, as this chair has suggested, there were issues before. I'm just wondering, in view of the question of the day, whether—

Mr. Donald Belch: I'd suggest to you that they've crystallized since September 11, that Americans are more concerned about security of supply.

Mr. Brent St. Denis: Thank you.

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The Chair: Thank you very much.

Mr. Penson would like a brief clarification.

Mr. Charlie Penson: Mr. Peeling, you were talking about the Mintz report and the issue of why you don't qualify for the corporate tax reduction—not being able to deduct provincial royalties as an expense. Could you send the committee an expanded submission on that? I don't think we're really doing it justice here, and it's an important issue.

Mr. Gordon Peeling: Yes, we'd be pleased to. I should have referenced the submission we made to the finance committee with respect to a pre-budget submission. I think it would be quite helpful if you received that, because we go into quite some detail in it. I'd be pleased to forward it to you.

The Chair: That would be great.

To pick up on Mr. St. Denis' and Mr. Belch's comments, I would agree, based on the information I've received from the steel industry in my area, that when you miss a just-in-time delivery appointment, the company is not ready for you to deliver 12 or 18 hours later. A lot of people don't seem to understand that as a result of that first week after September 11, customers now go elsewhere because of the way it caused them not to have a supply for their business. It's very disturbing, but all you have to do is be late a couple of days and they'll say they need a steady state of supply. To regain that confidence is going to require, I believe, changes at the border to assure people that not only is the security there, but the efficiency is there and it's working.

I do want to thank the steel industry and the mining industry for being here this afternoon. We apologize that we have to go and vote. Your presentations were very helpful, and we will be looking further into regulation, but obviously right now we're dealing with the economic impacts of September 11. Thank you very much.

The meeting is adjourned to the call of the chair.