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STANDING COMMITTEE ON FINANCE
COMITÉ PERMANENT DES FINANCES
[Recorded by Electronic Apparatus]
Wednesday, May 31, 2000
The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone here this evening. As everyone knows, the order of the day is Bill C-213, an act to promote shipbuilding, 1999.
We have a number of representatives from various organizations. So that we're clear on the order, I'm going to state what the order is according to my understanding, and then you can tell me if that's the order you like.
We'll start with Antoine Dubé, and then we'll go to Mr. Morrison from the Canadian Shipowners Association. Mr. Dubé will also read portions of the brief presented by the Government of Quebec, represented by Jacques Gagnon and Jean-François Gauvin. Then we will hear from Les Holloway, Richard Gauvin, Mr. Chernecki, and Peter Cairns. Is that correct?
A witness: Yes.
The Chair: Of course, I also want to welcome from the Marine Workers' Federation, CAW, Philippe Tremblay, service director, Fédération de la Métallurgie Inc., CSN; George MacPherson, Shipyard General Workers' Federation of B.C.; and from the Shipbuilding Association of Canada, Richard Beaupré, Richard Bertrand, and Alan Thoms. I hope I didn't miss anyone.
Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): Mr. Tremblay is not here. Mr. Gauvin is here.
The Chair: Okay. But I mentioned your name as well.
Mr. Antoine Dubé: Mr. Gauvin is here; Mr. Tremblay is not here.
The Chair: Monsieur Dubé, you may begin. Welcome.
Mr. Antoine Dubé: Thank you, Mr. Chairman. This is the first time I have played the role of witness. It alters your point of view somewhat.
Thank you for having allowed this meeting of the committee examining this issue to be moved up from the original dates of June 14 and 15. The witnesses are being heard this evening instead of on those dates, as was initially planned.
I do not have a brief to submit, since my brief, dear colleagues and witnesses, is my bill. I should say “your” bill, because actually, it contains three measures based on the demands of the Shipbuilding Association of Canada, demands submitted by the Association since 1996. They have been amended somewhat, but they are supported by a union coalition, represented by Mr. Holloway this evening. I will introduce him to you. So it is almost a collective bill.
I wish to say that I am very happy and that I was even surprised, at the time, that 146 MPs belonging to all the parties, even the majority Liberal Party, voted in favour of the bill. This has not occurred often in Parliamentary history. If that occurred, it means that the majority of people agree that there should be an act to promote shipbuilding.
The purpose of this bill, which comprises three measures, is obviously “to promote shipbuilding in Canada and make Canadian shipyards more competitive,” not among themselves, but among shipyards in the rest of the world. They are made competitive:
a) through the establishment of a program whereby a maximum of 87.5%
of the money borrowed by a company from financial institutions to
purchase a commercial ship that will be built in a shipyard located in
and in accordance with some other provisions. I think the witnesses will talk about them because we only have five minutes.
(b) by amending the provisions of the Income Tax Act and the Income Tax
Regulations to improve the tax treatment of lease financing for the purchase of
a ship built in a Canadian shipyard; and
c) ...by amending the provisions of the Income Tax Act and the Income Tax
Regulations to allow a refundable tax credit for a portion of the costs relating
to the construction or refit of a commercial ship in a shipyard located in
or the conversion of a ship in such a shipyard...
This applies obviously:
(i) to the shipowner for the construction of a Canadian ship, or
(ii) to the shipyard owner for the construction of a foreign ship.
The people from the Association and the union coalition will talk about it. Clearly, since I am a member of the opposition, I cannot be too specific about the fiscal provisions. Normally, a bill having a financial effect is presented by a member of the government. My bill, however, has been deemed not only acceptable but also votable, and this is not always so for private bills.
Am I speaking a little loud, Mr. Plamondon?
Mr. Louis Plamondon (Bas-Richelieu—Nicolet—Bécancour, BQ): No, you are speaking too fast.
Mr. Antoine Dubé: I am speaking too fast. So I will slow down.
The bill was deemed votable, and it was passed on the second reading. Mr. Chairman, I hope it will also be passed on the third reading before the end of this session if that is the wish and if people agree on it fairly quickly. I know that the clause by clause study is scheduled for June 7. Still, I would like to say right away that if there were some way for it to be before the next session, given the urgency of all this...
There are always election rumours at the end of the third year of a term. Elections could be called at any time. You may not think so, but I am telling you that we must not take any chances with this. I suppose there are some electoral considerations at stake. It is primarily because the situation is so urgent; Canadian shipyards are having such a hard time these days. They have been having a hard time for the past ten years, but they are having an even harder time right now.
I have provided a list, which is somewhere in the file. It does not include all the shipyards in Canada, but you have a list. It is obviously written in French. It is a list which I had drawn up on April 15, in these shipyards.
Of course, it is variable. There may have been an increase since that time. I had identified 2,756 jobs in the main Canadian shipyards as of April 15. It seems that the situation has improved a little since then.
Mr. Chairman, I would now like to bring to your attention a document prepared by Jacques-R. Gagnon and Jean-François Gauvin, of the Quebec Department of Industry, who were not able to come this evening. I will not present the document in their place, but I would ask you to pay very special attention to it.
If you will, among the recommendations found on page 6, I draw attention to the one that says:
The strategy pursued by the Canadian government in recent years, which
tries to convince other countries to stop assisting their marine
These countries do so by means of subsidies. Or the U.S. is asked, for instance, to give up its protectionist measures.
Despite these good intentions, the situation has not really changed and during that time the Canadian shipyards have been in the worst of situations, that is, with neither subsidies nor protectionist measures, except for the 25% customs tariff.
By the way, this tariff does not apply to American ships that use the St. Lawrence Seaway, as the people from the marine industry reminded us today. Furthermore, they are exempt from charges for ice removal and navigational aid, though the marine industry is now being asked to contribute to these costs.
This is why we say the marine industry and shipbuilding are in the worst of positions. In the end, we make things easier for the Americans than for ourselves, which is rather extraordinary.
I insisted on there being witnesses from the Quebec government, especially for the tax credit. I know that there are some Quebeckers here who are good at finance. Because of the dual tax system, the profits generated by the Quebec tax credit allowed to Quebec shipyards are taxed by the federal government. It may not be deliberate, but that is the effect it has. It is ridiculous for one government to try and help an industry with a program whose effect is diminished by the other government. These are basically the comments by the people from the Quebec government.
There are also a few pages taken from a study conducted by the Standing Committee on Industry, on which I sit, entitled Productivity and Innovation. You will take special note of two of the recommendations in the report. Recommendation 29 reads thus:
That the Government of Canada seek the repeal of the so-called Jones
Act of the United States or seek an amendment to it that would provide
an exception for Canadian built, manned or repaired vessels.
Recommendation 30 reads as follows:
That the Government of Canada consult with all stakeholders of the
shipbuilding industry to adopt and modify industrial policies that
would assist shipbuilders in capturing niche markets.
The other day, when I asked for the hearing of the witnesses to be moved up to today, you asked for an opinion from the Industry Committee. I submit this one to your attention. What better opinion could we have in that regard?
Finally, the other documents are speeches I have given in the House about this bill. I will not begin again, Mr. Chairman. I am hopeful that the people here will defend their concerns vigorously and effectively. I wished to meet their concerns with this bill.
I should point out that I was not able to include anything to do with the Jones Act in the bill, as you will well understand, since an American act cannot be amended by a Canadian one. That has to take place through negotiation. I just wished to mention that point.
Mr. Chairman, will you accept questions after each presentation or only after all the witnesses have spoken?
The Chair: No, I like you there where you are. So we're going to wait until the end. Is that okay? Then you'll come back. You can ask questions afterwards.
Mr. Antoine Dubé: Can my colleague Mr. Plamondon stay for a minute still?
Mr. Paul Szabo (Mississauga South, Lib.): Can we ask a question now for clarification?
The Chair: Yes. What is it, Mr. Szabo?
Mr. Louis Plamondon: I still have 15 minutes.
Mr. Paul Szabo: It's just for clarification on the bill.
Mr. Antoine Dubé: No problem.
The Chair: Yes. You can ask questions as well. Don't worry.
Mr. Paul Szabo: Can you advise me what the significance of the 87.5% financing cap is under the program you're prescribing? Why is it limited?
Mr. Antoine Dubé: The percentage may be higher, but it is based on the American program, which has been in existence since the 1930s, I think, and which is called Title XI. You must not think that it is so high, because the EDC itself has a program providing for 80%, limited however to exports. Obviously, they are talking here about opening...
Mr. Paul Szabo: Secondly, under the interest rate and repayment terms on the loan guarantees, it calls for “comparable to”. I would like to understand what constitutes “comparable”, if it's a comparable interest rate. Are we saying large corporations with top ratings would be subject to the prime rate? Are you suggesting they would be eligible for the top financing rate?
Mr. Antoine Dubé: That is what it means. Actually, it also means something else. As you know, the industrial policy of the Canadian government and the Minister of Industry regards four areas as priorities: aerospace, communications, biotechnologies and I forget the last one. As I recall, there are four. Ultimately, we are asking the government to acknowledge that shipbuilding is equally important, because we maintain that it is also part of high technology.
Mr. Paul Szabo: Thank you. I'll have questions about the act specifically, but those were just a couple I wanted to understand.
The Chair: Are you finished questioning Mr. Dubé, or will you go back to him?
Mr. Paul Szabo: He may have to be available at a later date.
The Chair: Okay.
Do you have a question for Mr. Dubé, Mr. Herron?
Mr. John Herron (Fundy—Royal, PC): Not at the moment. Antoine and I have probably discussed this issue on a proactive basis over the last two and a half years, so I'm okay for now.
The Chair: Okay.
Mr. Dubé, take your seat back here if you like.
Mr. Antoine Dubé: Mr. Herron gives me the opportunity to say that Ms. Wayne and several other colleagues who have shipyards in their ridings—this is also so for Mr. Earle—made things easier for me, since they are obviously extremely interested in the issue themselves.
I also wish to thank Mr. Lastewka. In his riding, people made things easier for me during my visits. I wish to thank all these colleagues and of course the 146 who voted in favour of the bill on its second reading. I beg them to be consistent and do likewise on the third reading.
The Chair: Okay.
We'll now hear from the Canadian Shipowners Association, Mr. Morrison. Welcome
Mr. Donald N. Morrison (President, Canadian Shipowners Association): Thank you, Mr. Chairman.
On behalf of the member companies of the CSA, I would like to thank you for inviting us here tonight to make a presentation.
Shipbuilding is an important industry in Canada, and it's obviously of enormous interest to Canada's shipowners. We have a proud history of investing in and operating Canadian-built commercial vessels.
We particularly want to thank Mr. Dubé, for preparing the legislation before the committee this evening. I have had the good fortune to meet with Mr. Dubé to discuss marine issues on several occasions. He has a very good understanding of our industry and a commitment to finding solutions.
In the case of shipbuilding, it is easy to cite excuses such as global over-capacity and foreign market protection as reasons for Canada's industry decline. Mr. Dubé is proposing solutions and we congratulate him for taking this initiative.
We know he's been working hard on it, and we're pleased to see that he's got as far as he has with it so far.
The CSA represents Canadian-flagged commercial ship-operating companies. We have nine members operating 87 vessels, almost all of which are Canadian built. In 1999, our vessels transported over 73 million tonnes of cargo on the Great Lakes, the St. Lawrence waterway, the Canadian east coast, and Canada's Arctic. We are a marine nation bordered by three oceans and have privileged access to the Great Lakes and the St. Lawrence waterway, one of the largest inland waterways in the world.
I know, Mr. Chairman, that you and several of your members heard us at length this afternoon talk about the difficulties we're having with our industry at this time, and I won't go through all of that again. Some of the people can read the transcripts from this afternoon, and in the interest of time I won't go through all of it tonight; I'll just touch on some of the more important issues.
In Canada, the marine transportation industry contributes 40,000 jobs and some $2 billion annually to our economy. The waterway, Great Lakes-St. Lawrence, where most of our CSA business is done, is a pillar of the North American economy. We contribute upwards of $6 billion annually and more than 65,000 direct jobs to the Canadian and U.S. economies.
As with other segments of Canada's transportation sector, the quality of our infrastructure is vitally important to productivity and competitiveness, and our ships, for us, are the key asset of our marine infrastructure.
Renewal of Canada's fleet of commercial carriers is among the most pressing of issues facing Canadian shipowners. The average age of Canadian vessels on the Great Lakes-St. Lawrence Waterway is 27 years.
They're already on average 27 years old.
The bulker fleet, which handles huge volumes of iron ore and grain, averages 29 years.
They're even older.
Much of the domestically flagged fleet requires replacement—bulkers, self-unloaders, and tankers. The challenge is in the economics of the marine trade. The shippers served by Canada's fleet are engaged in mature, competitive international markets. These shippers include steel producers, grain growers, and coal and iron ore producers. Their markets, in addition to being fiercely competitive, are affected by international subsidization—grain; dumping—steel; and the type of widely variable pricing swings that characterize international commodity trading.
Shippers ultimately pay a share of the cost of vessel replacement and maintenance through shipping rates. As these industries fight to maintain international market share, our members are reticent to add to the cost of transportation to market.
At this time, the economics of vessel replacement for us just don't add up, despite a pressing need for new infrastructure. Yet there are good reasons for us all to support a renewed fleet.
Some of Canada's leading industries rely on marine transportation and have few affordable alternatives, so it directly affects the competitiveness of key industries in our economy. Marine transportation is safer and more environmentally benign than the alternatives. Canada's highways are already congested with commercial trucks with growing public concern for safety.
From an environmental perspective, marine transport merits a closer look. Take greenhouse gas emissions, for example. A recent comprehensive study by this government and the transport industry as part of the international commitment to lower greenhouse gas emissions concludes that only 0.2% of these polluting emissions are from marine transport. Rail freight accounts for 3.9% and commercial trucks for 27.2%. So if current marine traffic were diverted to other modes, Canada's emissions challenge would grow significantly.
Renewed infrastructure for commercial marine transport provides more options for Canadian shippers and greater flexibility.
Mr. Dubé's legislation provides some concrete, practical initiatives to address Canada's shipbuilding crisis. If implemented, these measures would help create an environment for more investment by Canadian shipowners and the renewal of Canada's marine fleet.
Extending government-backed credit guarantees to 87.5% from Canada's current level of 80% would put Canada on a level playing field with the U.S. in this area.
Mr. Dubé already explained that moving to the 87.5% guarantee puts us on the same footing as the people in the U.S.
Currently, lease regulations significantly restrict the capital cost allowance provisions available on the lease of a Canadian vessel. Shipowners would have more flexibility employing vessels through lease arrangements if the tax treatment of this transaction was improved, as proposed in Mr. Dubé's bill.
The important one for us, and the most important of the three, is the refundable tax credit on the purchase of Canadian-built vessels. This could significantly contribute to fleet renewal through new construction at Canadian yards. A tax credit could help bridge the economic gap that up until now has made recent investment in new Canadian ships almost impossible.
As a final word, I think it's worth noting that transportation in Canada and internationally has always involved partnerships between public and private sectors and infrastructure investment by governments. Canada's railways are expanding business on the strength of an attractive regulatory environment. Public spending on highways makes commercial trucking possible. In the early 1960s a tax environment that encouraged investment in Canadian ships was the key ingredient necessary for the construction of the current Canadian fleet. It in turn has been the workhorse for 30 years of commercial shipping.
We very much support Mr. Dubé's initiative. Creating a more supportive financial and tax environment for shipbuilding can help re-build Canada's vessel construction and repair sector and improve the shipping services sector through renewal of the domestic fleet.
Bill C-213 not only provides some solutions in itself but it is also a great stimulator for discussion, in forums such as this one, on an issue that must be dealt with and clarified within the short term.
I would think that might be the single most important factor of Mr. Dubé's bill.
A new defined shipbuilding regime affects not only those locales where infrastructure for building and repair exists, but also every location touched by the Great Lakes-St. Lawrence transportation system.
I thank you again for asking the CSA to comment on this legislation. We feel that the discussion on the bill is an important impetus to begin serious discussion on this important industry, notwithstanding the outcome of the legislation.
One personal comment I would make in terms of the bill itself is that whether or not it is passed into law the way it is, it should have the application of regulatory powers somewhere in that act so that, for example, the Minister of Industry would be allowed the power in effect to deflect some implementation responsibilities. As it sits now, the act as it is would be the law, and it might not go far enough. The government wouldn't have the ability to tinker with the implementation unless it has some regulatory powers attached to it. We would leave that up to the lawyers and the people who can do the legislating. But it is a comment that we would have. Recently, many acts have allowed the government the power through regulation to create new terms.
Thank you very much for the opportunity to comment.
The Chair: Thank you very much, Mr. Morrison.
We'll now hear from the Marine Workers' Federation. We'll begin with Mr. Holloway.
Mr. Les Holloway (Executive Director, Marine Workers' Federation-CAW): Thank you, Mr. Chairperson.
I'll be speaking to the document we've circulated to the committee. It is supported by our federation, which is part of the Canadian Auto Workers union; Fédération de la Métallurgie out of Quebec; as well as the Shipyard General Worker's Federation of British Columbia.
I want to start by saying that we appreciate the opportunity to appear again before this committee. I want to take this opportunity to thank formally all the MPs who supported the bill during second reading in the House of Commons. Of course, we would want to see and encourage support for this bill when it goes back to Parliament in the form of legislation, and we would like to see the bill passed so that we can assist this industry.
I want to acknowledge the many shipyard workers and representatives of unions who made the trek here and are sitting behind me. They represent almost every province where a shipyard resides in this country.
I want to start by referring to page 7 of our document, the last page. I want to read a quote from the report of this committee following its prebudget consultation process, during which we appeared. This committee said:
We understand the important role this industry plays in various
regions of the country as well as in the global trading and
transportation system. For these reasons, we urge the federal
government, in collaboration with provincial governments, to examine
the issue of shipbuilding in Canada and the ways this industry can
meet its international challenges.
I'm here speaking before this committee to say that you have the opportunity. You have the opportunity to do something on this issue, which is very important to the workers who sit behind me and to those who stand in representation of thousands of shipyard workers who have lost their jobs.
What is the situation presently, since we last appeared before this committee? One of the largest shipyards in this country, one of the finest facilities in this country that has built nothing but world-class vessels, the Saint John Dry Dock, is closed. That's a sad commentary to a shipyard that employed more than 3,000 workers not many years back. We have as well the East Isle Shipyard in Prince Edward Island that is now closed, directly the result of the fact that they can't export a tugboat to the United States, something they're very capable of building, because the market is closed to Canada. Yet under NAFTA, the United States can import as many tugboats to Canada duty free as they would wish.
In the layoff situation, we are just over 100 workers in the Halifax shipyards, which had a workforce of over 1,100. In Marystown, Newfoundland, we have a situation where there are some 40 to 50 workers in that facility, another facility that can employ over 1,000 workers. Our brothers and sisters who work in the province of Quebec are suffering the same. You will hear some of that. The last I heard, fewer than 100 workers were working there. In British Columbia, the slide continues. So the situation in the shipbuilding industry is truly one of crisis and not one we should be proud of as a maritime nation.
There are three issues I want to speak to specifically. One is the overcapacity issue. I speak to this issue because it is an issue we are continually faced with. It is raised as a reason that we should do nothing as a nation for this very important industry. I want to say to this committee that the overcapacity issue is not an issue we should be concerned about. Asian countries have superficially created an industry that is completely out of whack with what the realities in the world are.
I think what we should be doing, instead of using the issue of overcapacity as a reason that we should do nothing, is concentrating on what we have to do in Canada to create a very viable and prosperous industry by focusing on what percentage of the world market and what percentage of our own domestic market we must secure to ensure that this industry remains vibrant and sees some growth.
The other issue is that of the global marketplace. As we are requested to compete in the global marketplace, we're asked to compete in that global marketplace without a fixation on the global realities that one is to compete in. The realities are that nobody's playing by the rules in this industry. Yet we as a nation play by the rules, and because of that we're unable to compete.
The government is continually saying to us that in fact we must compete without a recognition of those realities. The argument that if we do it for shipbuilding, we have to do it for every other industry says to me that we're not involved in the global marketplace with a true understanding of how we must be a part of that global marketplace. It can't be without a recognition of the realities that a specific industry may face. Shipbuilding is very different from a lot of other industries. The answers and the resolves in finding answers to the problems we face in the industry can only be found if we recognize that the realities we face in competing are different.
A good example of that is the Title XI financing package in Canada. We have 80% financing for 12 years through EDC for export only. We have no financing for domestic purposes. In the United States, as we well know now, you can receive financing for 87.5% of the costs of a vessel for a 25-year period. In the U.S. Merchant Marine Act of 1920 and the Jones Act, the Americans have full access to us in Canada, to our market, yet we have no access to their market.
Those are the global realities that I speak of and that we as a nation have to compete in. To say to the shipbuilding industry in this country that they must compete without being on that same playing field is not fair and it makes no sense.
The last point I would like to make specifically is this. Do we want a shipbuilding industry in this country? That's really what the question is. I watched a news show on TV last evening. There was a ten-minute segment devoted to shipbuilding in Atlantic Canada on the Atlantic television system. I listened to Minister John Manley say something to the effect of “Does Canada want to look to industries of the future or to shipbuilding?”
Let's analyse whether or not shipbuilding is an industry of the future. I think most of us here know from the last presentation that over 75% of all goods that are created in this world at some time or another will move in the bottom of a vessel before they reach their final destination. The most economical form of transportation is in the bottom of ships. It's the most environmentally sound form of transportation that exists today. It's also a very high-tech industry. That doesn't sound to me like an industry that is not an industry of the future; rather, it sounds very much like it's an industry of the future and one that we as a nation would want to be a part of.
I want to read specifically from our document now before I close off and provide the opportunity to my counterparts who sit here with me to add a few comments.
On page 5, we call on the Government of Canada to:
(a) Provide an improved export financing and loan guarantee program similar to the Title XI program in the United States, to enable owners and shipyards to obtain long-term financing with attractive terms and credit guarantees, accessible for both domestic and exported vessels built in Canadian shipyards.
(b) Exclude new-construction ships built in Canadian shipyards from the present Revenue Canada leasing regulations.
(c) Provide a refundable tax credit to Canadian shipowners or shipbuilders who contract to build a ship or contract for conversion with change of mission, mid-life refit, or major refit in a Canadian shipyard.
Mr. Antoine Dubé: Could he slow down a bit so that the interpreter can keep up?
Mr. Les Holloway: I was working on my five minutes.
The Chair: You have to go slowly.
Mr. Les Holloway: Okay.
(d) Eliminate the one-sided aspect of NAFTA, which allows the U.S. to sell new or used ships duty free in Canada yet prohibits Canadian access to the U.S. market.
(e) Work towards the implementation of an international social clause governing labour standards in shipbuilding.
(f) Examine other measures to enhance the degree of Canadian content in the marine construction and shipbuilding components of future offshore petroleum developments.
(g) Begin to reinvest in Canada's battered coastal infrastructure, including coast guard facilities, docks and harbours, and other important public coastal assets, thus generating additional demand and employment in shipbuilding and related industries.
These proposals must be taken in conjunction with policies that are already in place, such as:
(a) The present 25% tariff on non-NAFTA imports.
(b) The commitment by the Canadian government to exclusively use Canadian shipbuilders for renewal, repair, and overhaul of their fleets.
(c) Existing capital cost allowance provisions.
(d) The present research and development tax credit system and the Technology Partnerships Canada program.
In closing, we very much support the content of Bill C-213, an act to promote shipbuilding. It is a start on three very major components of a shipbuilding policy in this country. We would urge this committee to recommend to Parliament that this become formal legislation and to present it back to the House in that context. I would now defer any further comments to questions.
The Chair: Mr. Gauvin.
Mr. Richard Gauvin (President, Syndicat des travailleurs du Chantier maritime de Lauzon, Fédération des travailleurs de la construction navale (TCA)): Thank you for the opportunity to make this presentation. Actually, we made it at the very beginning, a few months ago.
You will understand how important it is to act on this matter. For us, it is now or never. Following the recent lay-offs, the Canadian shipbuilding industry has entered a crucial phase of its history, one which may prove to be terminal.
Our government has the fiscal and political authority to put forward essential measures guaranteeing the future of the Canadian shipbuilding sector and what it represents in terms of jobs, the high-tech industry, which is of regional and strategic importance, and components central to our national sovereignty. Passiveness in the face of this situation would have deep and lasting negative effects.
Mr. Chairman, why is it important to act? It is because of the very low employment level throughout Canada's shipyards. It is also because of the socioeconomic impact on all workers and their families, and the economic impact on all the regions affected.
For all these reasons, we support the bill presented by Mr. Dubé. Clearly we would like a positive outcome as early as possible on account of all these factors.
The Chair: We'll now hear from Robert Chernecki.
Mr. Robert Chernecki (Assistant to the President, Canadian Auto Workers; Marine Workers' Federation): Thank you, Mr. Chair.
I want to also join my colleagues, of course, in complimenting Antoine Dubé on his bill and compliment those who support it on second reading. I guess the proof will be in the pudding, so to speak, once this reaches third reading, to see where members of this great Parliament will be on that issue. I can tell you Canadians will watch it very closely. Especially those in Quebec and Atlantic Canada will watch very carefully how the government acts on this issue, because it is crucial to the survival of a lot of communities in this country, it's crucial to the survival of this industry, and it's crucial to the survival of the owners and the associations that deal in this industry.
I want to take issue for a moment with Mr. Manley and a lot of his rhetoric. I get a bit tired of him running around the country with his flag saying, “We can't compete in this industry. There's no market here. There's no future in it.” I want him to tell Canadians and tell Atlantic Canadians and people in Quebec and across this country why he is so opposed to subsidies when every other country in this industry has them. He owes the country an answer. He owes workers an answer. He owes the workers in the Saint John shipyard that answer.
I get a little bit uncomfortable trying to explain to people time and time again why Mr. Manley is so opposed to this industry. I don't understand it, and for the life of me I never will.
Look today at India, one of the prime countries in this industry. There's a 30% subsidy in that country for the owners and the builders. In Europe it's 7% to 16%. In Sweden they just reintroduced a 9% subsidy. In Australia they introduced a 5% subsidy. We're not going to ever get around the Jones Act. We have a better chance of getting rid of the GST in the future.
Voices: Oh, oh!
Mr. Robert Chernecki: All I can tell you is this. A lot of Canadians are watching this very carefully, and we're expecting the government to act responsibly in this bill. We think they will. More and more, as people listen to our arguments as a union and to employers and MPs, people understand this more clearly. We're not asking to take a fat industry and subsidize it to the point where we're on the backs of taxpayers. That's not it at all.
If people really have a good, hard, honest look at this industry, and visit them, get their hands a little dirty, they know. Have a look at the yards we have across the country today. They are first-rate, high-tech yards with resources that one can only hope for in terms of equipment and people.
So the issue for us is pretty straightforward. It's no secret in this room, or it shouldn't be, that we've appeared before every committee that will listen to us across the country.
Finally an MP out of Quebec and a lot of MPs in other parties, such as Elsie Wayne and members of the NDP, are listening and understanding this. Finally we have something we can get our hands on. It's not asking for handouts. It's clearly a very well-designed bill that you can handle and this government can handle without it being perceived that we are bailing out an industry.
I'm going to close my remarks by saying this. This is a bill that will provide work for people in this industry. All of us in this room know the spinoffs are between three and four jobs for every one you produce. It's not a bill that would provide fat subsidies to the industries. We don't want to see that, and we're not asking for that. But we are saying stand up to your responsibility as a government and let's recognize that other countries have this and we have to find a way to get around it.
We'd rather have work. We'd rather have our shipyards moving than be on welfare and UI. The cost alone to this government in every community that has a ship industry in it for UI and welfare more than offsets the cost of investing in this important industry in Canada.
I'm going to close my remarks. I do want to say our union plays an important role in the country and in every province we're in. The president of our union, Buzz Hargrove, wanted to be here this evening but could not be here. He of course wanted to pass on his greetings. He believes this issue is crucial.
This has the full support of three unions, employers, two associations, and we believe the people of Canada. So I would encourage you to do whatever is in your power to ensure we have an industry and this bill gets passed.
Thanks very much.
The Chair: Thank you very much, Mr. Chernecki.
We'll now hear from the Shipbuilding Association of Canada, Mr. Peter Cairns, president.
Mr. Peter Cairns (President, Shipbuilding Association of Canada): Thank you, sir.
Good evening, ladies and gentlemen.
The shipbuilding industry appreciates the opportunity to appear before the Standing Committee on Finance in support of Bill C-213, an act to promote shipbuilding. In attendance with me this evening are Mr. Richard Beaupré, president of Verreault Navigation and chairman of the board of the association; Mr. Richard Bertrand, executive vice-president of Davie Industries; and Mr. Alan Thoms, president and chief executive officer of Canadian Shipbuilding and Engineering.
The Shipbuilding Association of Canada was formed in 1995, and it is an outgrowth of the Canadian Maritime Industries Association, which ceased operation the previous year. The mission of the association is the promotion and development of the Canadian shipbuilding, ship repair, and associated marine equipment and service industries. The membership of the association comprises the majority of the large Canadian shipyards situated on the Atlantic and Pacific Oceans and the Great Lakes.
Canada is a maritime nation. This fact is often lost in our centrist vision of Canada, built around the provinces of Ontario and Quebec. Nevertheless it remains a constant that Canada is charged with the responsibility for the care and welfare of an ocean area greater than its land mass. The St. Lawrence and Great Lakes waterway represents a marine highway as long as the Atlantic Ocean is wide.
Estimates of oil and gas reserves in Canada's Atlantic offshore continue to be revised upward, and exploration continues unabated. Offshore oil and gas is single-handedly turning the economy of Newfoundland around. North America's largest ferry fleet services the island communities of British Columbia, and in the Arctic Ocean our claims of sovereignty are once again being challenged by our neighbours to the south.
For the foreseeable future it is projected that in excess of 75% of the world's goods will continue to be transported by sea and that maritime transportation will remain the most cost-effective and environmentally friendly mode of transportation on the planet.
Shipbuilding is known as a heavy manufacturing industry. It is less appreciated as a high-technology industry. The same information technology skills that are the foundation of the aerospace and automotive industries are also the keystones of the shipbuilding industry. The number of computer systems on a modern ship exceeds the number found in an automobile, an aircraft, or the space shuttle.
Shipbuilding plays a key role in the maritime defence of Canada. Our navy's Canadian patrol frigates and maritime coastal defence vessels are the envy of other maritime nations. This investment by Canadian governments has been repaid many times over in the Battle of the Atlantic, Korea, the Gulf War, and the Adriatic.
This is the environment of the shipbuilding industry. This industry supports maritime transportation and the offshore oil and gas industry on three oceans, the Great Lakes, and around the globe.
Japan, South Korea, and China are expected to continue to dominate the global shipbuilding industry. They presently have about 75% of the world market share. Canada is a very small player in comparison. Federal officials, as a consequence, tend to write the industry off, but this is not an issue of going head to head with these nations for market share.
As I have previously indicated, it is our view that Canada needs a viable, modern shipbuilding industry to support its domestic maritime requirements. Fundamental to this premise is the requirement for Canadian industry to also be able to compete in the international marketplace in those niche areas where Canadian technical skills and value-added can be exploited.
Shipbuilding has arrived at its present state not by natural market forces but by political manipulation, normally in the guise of protectionism and subsidization. Free market forces do not prevail in this industry. The nations that dominate the industry have set out to do so. It has been part of a coherent national government strategy.
South Korea has been responsible for a significant amount of the overcapacity in global shipbuilding. Expansion for the sole purpose of dominating the market has resulted in Korea dumping ships on the market at prices that are not profitable and that no other country can match. In 1999, prices of ships produced in Korea fell by 20%. This had nothing to do with increased productivity.
European and North American shipyards have been extremely hard hit. The European Commission is threatening to take the Koreans before the WTO. The OECD agreement to eliminate shipbuilding subsidies worldwide is in disarray, as the United States, the primary sponsor of the agreement, will not now ratify it. Nations appear to be hardening their position on subsidies. Germany has indicated they will continue their direct subsidy program until 2003. The United States remains firmly behind the Jones Act.
Meanwhile, Canada's relatively unprotected shipbuilding industry finds that the United States market remains closed to it, in spite of North American free trade, and continues to face restrictive trade practices in other markets, with no end in sight. At the same time, Canadian shipowners are going abroad to build ships and to take advantage of the lower subsidized prices offered by our competitors. Canadian shipbuilders do not wish to force Canadian owners to build in Canada, but they would like the opportunity to fairly compete for the business.
Bill C-213 is intended to assist the industry to combat the protectionist measures it faces. The measures in this bill are not intended to match those provided by other countries. The bill proposes assistance measures that we believe are in keeping with the mandate of Industry Canada to promote and assist Canadian industry. They are, in our view, in keeping with incentives provided to other Canadian high-technology manufacturing industries.
Bill C-213 proposes three measures to promote shipbuilding in Canada. These are: establishing a program providing federal loan guarantees to purchasers of commercial ships built in Canadian shipyards; amending the provisions of the Income Tax Act and regulations to improve the attractiveness of lease financing for the purchase of ships built in Canadian shipyards; and amending the provisions of the Income Tax Act and regulations to allow a refundable tax credit for a portion of the costs related to ship construction, conversion, or refit in a Canadian shipyard.
The Shipbuilding Association of Canada commissioned the respected consulting firm KPMG to analyse the measures proposed in Bill C-213 and estimate the impact of these incentives on the orders, sales, employment, and economic activity in the Canadian industry. This study will be completed in one week from today and will be forwarded to the committee at that time. While we do not have the final results of the study, we do have enough information to apprise the committee in general terms of some of its findings.
First there is the loan guarantee program. This is viewed fundamentally as an export program. The creation of a loan guarantee program patterned after the United States Title XI program would allow purchasers of Canadian-built ships to obtain financing that matches the useful life of the asset. Particularly for owners who need to finance on the basis of the asset itself, this would significantly enhance the attractiveness of Canadian-built ships. Calculations suggest this might improve the price competitiveness of Canadian-built ships by 10% to 15% when financed under the loan guarantee program.
The next issue is the leasing provisions. This we see as fundamentally a domestic program. Canadian purchasers of Canadian-built ships benefit from the rapid write-off of the value of the asset for tax purposes, currently available under Canadian tax law. However, the specified leasing rules in the regulations severely restrict the ability of the lessor to take advantage of this accelerated capital cost allowance.
Accordingly, leasing is effectively not an option for financing Canadian-built ships. The proposals in the bill would remove Canadian-built ships from the specified leasing rules. Calculations here suggest that this would also improve the competitiveness of Canadian-built ships by 10% to 15% when lease financed.
Next is the refundable tax credit. The third provision in the bill mirrors an existing provision in the Quebec tax regime. It would provide credits for a portion of the cost of constructing or refitting a commercial vehicle in a shipyard located in Canada or the conversion of a ship in such a shipyard. The provision is intended to offset some of the learning curve costs associated with producing a new product.
Indications are that this provision would have the effect of reducing the overall cost of a series of ships by about 6%. The committee should note that we strongly recommend that credit be assigned to the shipbuilder, whether that builder is Canadian or foreign.
At the close of 1999, there were 26 ships on order for Canadian interests, 16 of which were being built in foreign yards. It is reasonable to assume that four to six of these ships could have been competitively quoted and won in Canada had the provisions of Bill C-213 been in place. Add to this the potential for renewal of Canada's Great Lakes fleet and the growth in Canada's Atlantic offshore industry, and the projection for job growth and economic impact is expected to be significant. What is significant? Job growth doubling in two years, doubling again in five years, with no infrastructure investment by the Canadian government.
In conclusion, the shipbuilding industry in Canada can benefit the federal government by providing advanced technology jobs for Canadians, many of those in regions where they are most needed. It can be a significant contributor to the wealth of the nation. The industry has been positioning itself for some time to be more competitive in the international market. With the industry and government working together, there is no reason this cannot happen.
I would just add in closing that we would support Mr. Dubé's request to expedite the article-by-article review. This bill is extremely important to us, and if it is passed sooner rather than later, there will be a lot of happy people out there. Thank you.
The Chair: Thank you very much, Mr. Cairns.
We'll now go to the question-and-answer session. I don't see any further speakers, according to my list.
Mr. John Herron: I just have a couple of brief comments. I'd like to compliment the presenters on the fact that they recognize where the markets are for the Canadian shipbuilding industry itself. You reiterate these very comments with respect to the fact that we do have a domestic market that needs to be filled and updated here, primarily in the Great Lakes.
You mentioned comments that we're not interested in competing with the Japans and the Koreas and those larger-type vessels, but there are some very specific niche markets where we can actually carve out some successes.
My comment to Mr. Cairns is that we have a fantastic opportunity in the offshore, with respect to the Ben Nevis oil field, White Rose, and Terra Nova, which has just come on-line as well. Different facilities are on-line. Could you talk about the opportunities the yards might have with respect to that particular industry and any indications you've had with people who own the rights to those particular fields?
Mr. Peter Cairns: I would ask my colleagues to comment on that too, if I might.
We have been in virtually constant communication with Petro-Canada with regard to assisting in providing equipment for offshore oil and gas. That is one thing the shipbuilding industry does well. We do build platforms, we do build offshore structures, and we do build service supply boats, anchor handling boats, and that sort of thing.
One of the issues we have is that shuttle tankers, those kinds of vessels, are being made of a size too big for our shipyards. It's somewhat difficult to determine why a tanker has to be 120,000 dead-weight tonnes and not 80,000 dead-weight tonnes. Those are areas we can look at. But there are also more and more projections that shuttle tankers will become smaller; they will not be required to be 120,000 dead-weight tonnes.
The oil and gas reserves are virtually daily being upgraded with regard to the estimates off the Atlantic east coast. I've also heard rumours floating around that now that Indian land claims may have been sorted out in the north, there may well be drilling in the Arctic Ocean, beginning at some stage in the relatively near...well, in the future; let's put it that way. That's the first time now in five, six, seven, or ten years that I've heard anybody talking about drilling back in the Canadian Arctic.
Mr. John Herron: I think you've been able to demonstrate throughout the presentations that have been made here today that clearly there is a marketplace for Canadian production of—
Mr. Peter Cairns: In my view, there's a concern about whether the Canadian government wants this to be a Canadian oil and gas industry or not.
Look at the Norwegians. The Norwegians in fact established a very strong offshore oil and gas industry in the North Sea twenty years ago. They did this by saying, “If you want to come and provide services in our industry, you're going to have to set up industry in our country, and you're going to have to develop Norwegian industry.”
I do not see anything like that happening in Canada. In fact if you look at Hibernia, the amount of Canadian input in Hibernia was minimal. Hibernia was built in the United Kingdom and everywhere else.
I believe that as long as these price structures remain, you're going to have to try to buy some Canadian in these offshore oil and gas fields.
Mr. John Herron: My last comment, very quickly, Mr. Chair, is this. I'd like to reiterate to all members of the committee that these initiatives that have been put forth in Antoine's bill are not just endorsed by the labour movement, not just by the shipowners, not just by the shipbuilders. They've been endorsed also by all ten premiers in Canada on two separate occasions: at the Saint Andrews conference back in 1997 and again in Quebec City in 1999.
At a minimum, in terms of what this finance committee should endorse, revising the leasing provisions is a tax incentive. There's no subsidy component to that aspect of it alone, so delivering that part in the tool kit is something we should do right now. I'd argue right now we're taking in no revenues, and I'd rather take in some than this fictitious “a lot of revenues”.
The second aspect of it is having a loan guarantee program similar to Title XI. I'd like to ask if there have been other examples. There's a company called Secunda Marine, which actually is a Canadian yard that used the American Title XI loan guarantee program to actually have a ship made. If we had a loan guarantee program in the same fashion, we likely would have had a ship made here in Canada. Are there more examples than just the one with Secunda Marine?
Mr. Richard Bertrand (Executive Vice-President, Davie Industries; Shipbuilding Association of Canada): I'm Richard Bertrand from Davie Industries in Quebec City.
We lost two semi-submersible rigs at an all-out price of $160 million U.S. because of Title XI loans at 6% interest rate for 25 years and 87% finance. That is about 1,300 jobs for two and a half years. This is an example that has gone to the U.S., and this is a client who has opted for the U.S. market.
That same client and other clients are coming back with letters of intent for similar work if we can find the financial structure to retain them in Canada. We have the skill set. We've just delivered the largest production platform in the world, the Spirit of Columbus, to Brazil, and she pumped first oil two weeks ago.
So the knowledge and the skills are available. We have the wherewithal to make it happen, the engineering, and everything else. The spark that is missing is financing in a competitive market.
Mr. John Herron: Thank you.
The Chair: Mr. Dubé, do you want to ask a question?
Mr. Antoine Dubé: I may have another question at the end.
The Chair: At the end? Yes, of course.
Monsieur Earle, and then we'll listen to Ms. Wayne.
Mr. Gordon Earle (Halifax West, NDP): Thank you, Mr. Chair.
These are probably more comments than questions, but I do want to first of all say I'm very pleased to be here tonight and to lend my voice of support to this bill. I commend Mr. Dubé for the work he has done on this, and I commend you people for the work you have done in following this agenda and pushing it. Certainly the presentations tonight have been very clear and very precise and have addressed some of the key issues that centre on this topic.
I'm glad to hear you, Les, discuss the overcapacity issue, because that's an argument we get back quite often, and as you say, it's one we ought not to waste a lot of time fussing with. Rather we should be directing our attention to what we can do to make this a viable industry here in Canada.
It was well summarized when you asked the question, do we want a shipbuilding industry in this country? That's the thing. It really comes down to the political will on the part of the government. I think for most of the people around this table, you're preaching to the converted. I'm sure most of the people here support and recognize the need for a very viable industry in our part of the country and right across this nation.
I really don't have a lot to ask in the way of questions, because you spelled it out quite clearly, but I just want to make sure my voice of support is recorded on the record for this bill and for what it attempts to do. The NDP will certainly be continuing to push this issue and to lend all the support we can to the cause you've presented here tonight.
The Chair: Thank you, Mr. Earle.
I'm sure Elsie is going to have questions, comments, and some answers.
Voices: Oh, oh!
Mrs. Elsie Wayne (Saint John, PC): You're right; I am.
First and foremost, I thank all of those here tonight and of course my colleague, Mr. Dubé. We have worked very closely with him, and he's been very kind in allowing us to be at his press conferences and to speak as well.
Shipbuilding means a great deal to me and to my people in Saint John, New Brunswick. It was the Trudeau government that brought in the first shipbuilding frigate program, which put our shipyard where it is today. Then the following government gave us the next frigate program.
I'm not sure everyone is aware that in 1992 our present Minister of Industry—he was not at that time, but he is now—wrote a letter to Mr. Les Holloway. That letter in 1992 stated:
Thank you for writing to me to express your desire for a response to
your Federation's paper on shipbuilding policy.
The policy paper which you provided to me is under review by the Party
and the relevant critics. We will be providing you with a response in
Please be assured that the shipbuilding industry is a priority for me
as it is with my caucus colleagues. Once again, thank you for taking
the time to write to me.
That was before the 1993 election.
After the 1993 election he wrote once again to Les Holloway, and I have a copy of that letter. He said:
Thank you for your letter of February 2, 1994, concerning a follow-up
to roundtable discussions on the shipbuilding issues held in Ottawa on
May 27, 1993.
... Although no subsequent meetings of this nature are planned, issues
related to the shipbuilding industry remain important to me as
Minister of Industry. Nevertheless, I want you to know that I am still
very much aware of your specific proposals for this industry and would
welcome any additional insights you would care to offer.
That's from our Minister of Industry, Mr. Manley.
With respect, Mr. Chair, I have been up 27 times, as you know, asking our minister for a shipbuilding policy. We haven't received it. We are the only country in the OECD that entered into that agreement on shipbuilding in the early 1980s and is still adhering to that old agreement. Nobody else is. All of the other countries have changed everything. That's why we can't compete.
I have a fax that was sent to me just this day from P.E.I., from the East Isle Shipyard in Georgetown, P.E.I. They said—the legislature—that East Isle Shipyard in George has an international reputation for building quality tugboats but can't compete with subsidized shipyards in the other countries, and they had to shut down.
My shipyard, which is the most modern shipyard there is anywhere in the world—the lock and bolt is on it.
Les and the others were telling you about the spinoff. Do you know that if you create one job at the shipyard, as Robert was saying, it creates three or four more? Do you know how many people have left the largest city in the province of New Brunswick—which is mine—since 1993? Fourteen thousand people.
I have to say that we owe it to these people. We owe it to these people to have our shipyard moving, going. Because I'll tell you this; the spinoff effect into the economy is unbelievable. I have never ever seen paper bags up in the windows of the stores and the shops in my uptown core area. Never have I seen it.
We owe it to our people in Canada, not just in Saint John, and I'm showing you what it means. When we create jobs like that with the spinoff effect, you don't have people on welfare. You have them out there with their dignity. You have them out there creating other jobs and really contributing to the economy in a manner in which you wouldn't believe.
So I ask you.... Even our own Irving Oil is having their rigs built—the Irving Oil Company over there—in Asia because they can do it cheaper, and the shipyard is closed down.
I'm saying it's long overdue. Truly it is. When I went to see Mr. Manley, with respect, he told me we had to come to you fellows. He told me, Elsie, there are three departments you have to deal with, not just me. He said I needed to have Finance on board and I needed to have...well, right now it's Pierre Pettigrew's department. He said the three of them.
Mr. Antoine Dubé: International trade.
Mrs. Elsie Wayne: Right.
He said you have to put all three together, and when that comes about, then he's sure we'll get a shipbuilding policy.
So I'm saying, Mr. Chairman, to you, right here, that the onus is more or less on us around this table right here to go back to the government with a recommendation on this. The sooner we do it, you'll turn the economy around, from British Columbia right through to Newfoundland, P.E.I., New Brunswick, the Great Lakes, and all of them. It'll be the best thing you could do for the economy here in Canada, because you're not talking about just 4,000 jobs or 14,000 out of Saint John, New Brunswick; you're talking about a lot more than that, I have to tell you, in the Great Lakes area and out in B.C. and other places.
So I'm saying to the boys here that I support them fully. Yes, I do support them fully, but there's a reason for that. Peter Cairns and Donald Morrison, being businessmen like they are, are not here looking for handouts, but they're telling you that here, right now, and around the world, I'm telling you, they're looking at us. I've been in Europe, and I just came back from there, from Brussels, and I was over in St. Petersburg, Russia. When it comes to us they all kind of smile and hope you never have a shipbuilding policy because they're all doing extremely well. But they only pay their men about a dollar an hour, too, and you can't feed your family on that.
So let's bring our dignity back to where it should be in Canada. Let's all get together and do it. We can do it, Mr. Chairman. I know we can.
I have a great deal of respect for you, so I'm just going to say that I expect you to deal with Mr. Manley and straighten this out in a hurry!
Some hon. members: Oh, oh!
Mrs. Elsie Wayne: Thank you very much.
The Chair: Well, Mrs. Wayne, you've been a great witness.
Mr. Paul Szabo: Thank you, Mr. Chairman.
The committee is charged specifically with dealing with Bill C-213, so I'd like to try to get a better understanding from people who are in this industry about the impact of the kinds of proposals that have been incorporated into Bill C-213.
Maybe I could start with Mr. Beaupré. Maybe you could give me an idea, just for discussion purposes, of the average contract value to build a ship in a shipyard in Canada. What would be the average cost of a ship?
Mr. Richard Beaupré (Chairman of the Board, Shipbuilding Association of Canada): That's a very difficult question to answer. It depends on the type of ship you're looking for.
Mr. Paul Szabo: Mid-range.
Mr. Richard Beaupré: If you're looking at a Great Lakes self-unloader, I would say you're probably looking at somewhere around $65 million Canadian.
Mr. Paul Szabo: It's $65 million...?
Mr. Richard Beaupré: Correct.
Mr. Paul Szabo: So let's talk about a $65 million ship.
Mr. Cairns, you commented on the provisions, and it appears that you are aware generally of what's being called for. Have you an estimate of the value of this kind of initiative, say, of what it would mean in terms relative to a $65 million contract? In other words, is this 10% assistance or incentive? Is it 15%? Is it 20%? I'm trying to get an idea of what this might deliver in terms of assisting the construction of a $65 million ship, just to get an idea of the cost. Does anybody know?
Mr. Peter Cairns: It would be 10% to 15%.
Mr. Paul Szabo: Maybe 10% to 15%...?
Mr. Peter Cairns: If you have all of the measures, it would be more than that, right?
Mr. Paul Szabo: Well, whether it goes to the producer or to the purchaser, it's still—
Mr. Richard Bertrand: It is 10% to 15% or 18%, depending on the nature of the product.
Mr. Paul Szabo: Okay. Let's assume it's 20%. So we're talking about roughly a $13 million contribution from the federal government towards the building of a ship—$13 million.
Now, Mr. Bertrand, here's the real question. I don't know whether these figures are correct; I'm quoting them from someone else. It says here that between 1983 and 1996, about a 14-year period, the Government of Canada invested $1.6 billion in Davie Industries in terms of contracts, contributions, and loan guarantees—$1.6 billion.
If one $65 million ship equates to something like a $13 million subsidy, that suggests to me that what assistance has been provided to Davie Industries.... All of a sudden that appears to be 100 ships; the subsidy we're asking for now has already provided for 100 ships to Davie. So if that's the magnitude we're talking about in terms of government participation in supporting the shipbuilding industry, can you tell us what in fact has been the experience of Davie Industries in view of the fact that over this 14-year period $1.6 billion was assistance to Davie? How many additional ships did Davie build in that 14-year period?
Mr. Richard Bertrand: If I may, I'll first start at the top, with the $1.6 billion. I think the issue is that the word “assistance” is somewhat of a misnomer, with all due respect. With this money, the Canadian government procured three Canadian patrol frigates, fully equipped, at $425 million Canadian a copy, thereabouts. Now that's not subsidy; that is procurement.
They also, with that same amount of money, procured the modernization to the latest technology of four TRUMP-class destroyers, built in the early 1970s and needing refreshment and upgrading to be state-of-the-art warfare. They also, for the same amount of money you're talking about, procured two large ferries to serve the Confederation commitment to the traffic of Newfoundland, by the Minister of Transport.
In that $1.6 billion you made reference to, there was some element of subsidy and rationalization assistance provided by the federal government, which was both needed and essential to adjust our aim to the international economy. But to suggest that $1.6 billion was a subsidy and aid to a shipyard, when in fact it procured government equipment—essential needs for the Canadian government and the Canadian people—I have some difficulty with that.
Mr. Paul Szabo: Sure. I agree with you.
Mr. Richard Bertrand: There were some subsidies, with all due respect, in the rationalization of 1987. I've been at Davie since 1987—for the last 13 years. I missed the first three years of the period you talked about, but there was not much activity, I must say, before I joined. So I can speak with certain authority, since I was the vice president responsible for all these programs within Davie.
Mr. Paul Szabo: Okay. My final question—
Mr. Richard Bertrand: I believe we have shown and delivered to the Canadian government state-of-the-art technology to meet their very needs. With this expertise, and the expertise similarly acquired in Saint John and elsewhere in Canada, we stand poised to bring to this country a tremendous potential for exporting and meeting our own domestic needs, as opposed to having them met in China and Korea. I thank you for the opportunity to reply.
Mr. Paul Szabo: Thank you. My time is almost up here and I have a final question. Can you give us an example from your experience, where a contract has been tendered for the construction of a ship or the fabrication of a ship in North America, of what the differential has been, in terms of bids between Canadian shipyards and a U.S. shipyard that got the contract? How much has the differential been, in terms of the bids on those contracts?
Mr. Richard Bertrand: I would like to give you two distinct examples from my experience. One was a procurement initiative, on the part of a large Canadian ship operator, for three product tankers to replace aging capabilities. This owner went to Canada and to foreign shipyards for quotations. Davie quoted, assuming the assistance of the Quebec tax credit policy, which therefore gave it some edge over the remainder of the Canadian shipyards, I believe.
We came within 6% of a price coming out of China for a product with fair value-added. This was not just your standard product tanker, slapped together. It was a high value-added product, not something Korea and China would bang together to be very competitive and sell to you for the price of material or a bit more.
If we'd had one or more of the other features presented in Bill C-213, we would have been right up there with China and Korea. I'm sure, from similar experience expressed to me by the president of Saint John Shipbuilding and others in our association, this is a typical example.
We talked about offshore, but we didn't talk about the fact that there will probably be $20 billion to $25 billion worth of investment based in eastern Canada over the next five to six years, and $33 billion in Brazil, where we just served our last customer.
We bid internationally for the modernization of the Spirit of Columbus and we were within 8% of the best price. Had it not been for the Quebec maritime policy, we would not have brought 2,600,000 man-hours worth of work.
Mr. Paul Szabo: You've left me with a problem here. The first section of Mr. Dubé's bill is with regard to loan guarantees, rates, and terms, which I understand. But the capital cost relief, the refundable tax credit, etc., are all only available to the purchaser. If you tell me a China-based company has the contract, they can't get the benefit of Mr. Dubé's bill.
Mr. Richard Bertrand: No, they can't. To compete with them, we need the benefit of Mr. Dubé's bill.
Mr. Paul Szabo: You need the financing benefit.
Mr. Richard Bertrand: We need the financing benefit and many of the features presented in the bill.
Mr. Paul Szabo: But those other features are only available to the purchaser. If you're telling me the purchaser is offshore, they can't get a refundable credit from Canada.
Mr. Richard Bertrand: But if you can attract a client.... The bill has two features. As members of the Shipbuilding Association of Canada, we are suggesting the benefit be to the shipbuilder. It's easier for us and I believe it will make more sense.
However, financing is for the client, not for the shipyard. If you can attract a client by offering financing.... I have a letter of intent in my office for two platforms worth in excess of $200 million U.S. apiece, but there's a catch. I have to assist the owner in getting financing. When I attract him with the right financing, he's in like Flynn. He knows we can do it and he's a happy client. We solve this problem and we also create 2,500 jobs in the process.
Mr. Paul Szabo: Thank you, Mr. Chairman.
The Chair: Thank you, Mr. Szabo.
Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you very much, Mr. Chairperson. I have to say right off the bat I have a great deal of respect for my colleagues opposite, but I represent a southern Ontario riding that has nothing to do with shipbuilding. I may ask some fairly rudimentary questions to start with.
First, who buys the magnitude of ships that are defined in this bill—Canadian ships, commercial ships, and conversions of ships? If you were going to calculate a percentage between government purchases versus private industry, can you give me some kind of feeling what that breakdown would be?
Mr. Richard Beaupré: I haven't seen very many government ships being built in the last few years, or requests for government ships to be built. We've had very few, if any, Canadian ships built since 1985, when the last commercial Canadian ship was built.
Mrs. Karen Redman: So on Mr. Bertrand's example of the ferries, I know we're talking about government moneys, but would that be more of an exception than a rule? Are we talking about private companies?
Mr. Richard Bertrand: The government procurements are, most unfortunately for perhaps the industry but for everyone, somewhat cyclical. They procure a frigate every 25 years when the last one becomes obsolete. They procure icebreakers on a cyclical basis as opposed to a continuous basis. It's a choice and it's a question of many things I can't answer. But Mr. Beaupré is right. We haven't had a requirement for a few years.
There are some anticipated program needs, if you like. If we get approval from Treasury Board, we'll proceed over the next few years. Speaking for industry, I don't believe the needs of the domestic market, whether it is the Canadian government or the Canadian shipowners and operators, would suffice to provide full gainful employment to the Canadian capability alone. The exception is what Mr. Morrison suggested earlier, that if we're talking about the replacement of the Great Lakes fleet, I think that would keep us busy for years to come, at four or five ships a year, given the state of that fleet.
Mrs. Karen Redman: Clearly we're on an international stage here and these are international bids, so I'm not just asking for the buying patterns of the Canadian government. I'm assuming when you make these statements they hold true for the American and European governments. They would be smaller players, and you'd be looking more at commercial enterprises, with these barges and oil drilling platforms.
Mr. Richard Bertrand: Yes. Absolutely.
Mrs. Elsie Wayne: On a point of order, may I just clarify one thing for the honourable member?
The Chair: Are you going to wait for my response, Elsie? Go ahead.
Mrs. Elsie Wayne: Mr. Chairman, back in Saint John, the Irvings have bid on over 75 contracts around the world. They cannot compete with any of them because we don't have what Mr. Dubé's recommending.
So it is private when you look at it, but also it puts a spinoff into the community, which I think, Paul, is what I wanted to say. You're getting it back through taxes, you're getting it back through so many other things in the spinoff of the other jobs in the other industries, you're getting it back through that. So whatever you do give to the industry, you'll receive it all back again in dollars and cents.
Mrs. Karen Redman: Quite clearly, you all have the passion of your convictions, so bear with me while I work through this.
Where do people currently go to get financing?
Mr. Richard Bertrand: Aside from the U.S. Title XI, which we all spoke about as a reference or benchmark against which we're competing, most financing is done on the international marketplace, whether it's Mitsubishi in Japan, who will even finance work in Korea and elsewhere.... There are a number of large-scale financial institutions for the creditworthy corporation to use and rely on. However, they are linked to the creditworthiness of the company that procures the ship, and the rate will vary extensively. Therefore financing at the best rate is often a “go, no-go” element in a decision for procuring.
We heard about the average of the Great Lakes fleet, for example. I am pretty sure that most owners and operators of vessels would prefer to invest in new stock and operate less maintenance-intensive, less operator-intensive assets than what they, not always but frequently, are operating nowadays. The reason why they have not bought new assets or invested is basically because of the economics of it.
Mrs. Karen Redman: Are these in general fixed rates or floating rates?
Mr. Richard Bertrand: It depends. They are both available. Perhaps the highly respected people representing the owners' association would have a clear answer, but my experience has been that both are available.
The latest financing against which we competed was for two semi-rigs that ultimately got built in Korea, and it was a fairly high rate and it was floating. Yet a few months ago it was a fixed rate and it was for four years. So it depends. I don't have enough experience to generalize.
Mrs. Karen Redman: Mr. Morrison would like to comment.
Mr. Donald Morrison: May I make a comment?
I would like to put the size of our possible business in perspective, and I talked about our fleet being 27 to 30 years old. If we were to replace just a bit over half of our fleet, say 45 to 50 vessels, in the next 5 to 10 years, that business alone would be a $3-billion to $4-billion business for the shipbuilding industry, wherever it is. And it's not just in Canada that the bulkers, the tankers, and some of the older self-unloaders have to be replaced; it's worldwide. So I think we have to start thinking about the possibility of synergies in the Canadian shipbuilding industry, not just for working on our fleet.
You sat through a couple of hours this afternoon where you heard the largest shippers in this country and the largest shipowners in this country talk about cents per tonne and what that meant to their businesses. It's the same thing on the cost side, where we have to purchase the ships. It's that cents-per-tonne equivalent that we're spending when we're trying to do the ships.
We haven't built any, because as Mr. Bertrand said, the economics aren't working for us. With the pieces that are in Mr. Dubé's bill, the economics look better. We can't yet put numbers on, in terms of the tax credits and how it works against the CCA, but we're getting closer. And when we start talking about a reduction in cost of 15% and 18%, we're starting to get close to the numbers where our people will get very interested if we can get rid of some of the costs on the operating side—cost recovery. Our people will become very interested in replacement; so it would be a $3 billion to $4 billion business, in today's dollars, in the next five to ten years.
Mr. Alan Thoms (President and Chief Executive Officer, Canadian Shipbuilding and Engineering, Shipbuilding Association of Canada): Five.
Mr. Donald Morrison: Now five—forebodies, leaving the propulsion systems, the crew section, and the back as the old ship and rebuilding a bigger new forebody. You wouldn't do that if we had better economics. We don't have them. People are getting desperate. The companies are trying hard. They're doing whatever they can to get this going. But if we ever get a break where we can start to replace vessels, it will be a big deal, and we have to do it.
Mrs. Karen Redman: We have had handed out from the Province of Quebec a document outlining some of the measures that the Government of Quebec supply, and I'm wondering if any other provinces such as Nova Scotia, New Brunswick, or Newfoundland have done anything similar, and if they have, whether there's any kind of consistency with what has been happening at the provincial level. Can anybody answer that?
Mr. Peter Cairns: The answer is no.
There have been some one-offs in Nova Scotia, where a type of loan guarantee program very similar to what is being proposed in Mr. Dubé's bill was in fact used in Nova Scotia in two or three instances, for two ships, I believe, but it's not general across the board at all and there really is no consistency across the country.
What is of concern is that provinces start to take things into their own hands and we build tariffs within the country and you end up with an unfair plane even for our own domestic trade. We think a national policy is a far superior way to go.
Mrs. Karen Redman: How effective are the tax measures, in your estimation, that exist in Quebec?
Mr. Richard Bertrand: Speaking as a main player, because out of the $250 million worth of business, give or take, that has been brought as a direct result of these policies, we have effectively had $150 million to $160 million.
So they are quite effective, I would say. In three and a half years, going on four, roughly, it's brought about $250 million worth of business into Quebec that would not have been secured by us certainly—I won't speak for the other shipyards, but by Davie—had it not been for these measures. They made the difference on the modernization of the large semi-submersible platform that was done in the port of Quebec City, and this world first would not have taken place in Canada had it not been for this policy.
I get the impression from talking to the other shipyard owners that it has made a great difference for themselves as well and brought about $250 million worth of work.
Mr. Richard Beaupré: If I could just add on to what Mr. Bertrand is saying, in our shipyard we had somewhere in the range of about $40 million worth of work. It was owners from offshore, and we got that work primarily because of the tax credit. Because of the tax credit we could bid lower on the jobs and we were able to get these jobs where normally the vessels would probably be going somewhere else—not in Canada, somewhere else outside of Canada.
The only problem we found with it was that the federal government was taxing us on it. We got it from the provincial government. It became revenue and the federal government taxed us on it. It watered it down a little bit.
The Chair: Mr. Holloway.
Mr. Les Holloway: I want to say about what we referred to regarding Nova Scotia, the last of the two supply vessels that were built with that one-off program amounted to about $90 million worth of work. We built two supply ships for the offshore, state-of-the-art vessels, touted as one of the finest vessels in the world, if not the finest. I refer to John Herron's comments on Secunda Marine. It was two vessels that Secunda Marine built in a Mississippi shipyard. The reason they built them there was they accessed Title XI financing in the United States, which lured them to the United States to build the vessels.
Based on the two vessels that were built because there was this one-off loan guarantee program put in place for them, it's our view that Secunda Marine would in all likelihood have built the vessels in Nova Scotia if in fact there were similar programs there. Of course, you'd have to ask them that question. But most Canadian companies are of the view that they want to build here if the economics are right and it works for them.
The Chair: Ms. Leung.
Ms. Sophia Leung (Vancouver Kingsway, Lib.): Thank you, Mr. Chairman.
I really enjoyed all your presentations and I learned a lot. You mentioned many times the global competition for shipbuilding. If you do get all the benefits according to this bill, are you sure you can compete with other countries?
For instance, today I attended a meeting with Ford Canada. It was very interesting. They mentioned three countries. The average wage in the U.S. for car building is $65, in Canada $40, and $9 in Korea. But Canada can still compete very well, and actually we have built so many cars that it's even held against us at the WTO because we have built over double.
I will use the analogy to ask you: can you compete in the shipbuilding world market? Does anyone want to answer?
Mr. Richard Bertrand: We certainly believe we can, Madam. We are. We like to think we're between major contracts in our shipyard, but we brought in work in competition with the world. We brought modernization of the offshore platform. We brought ships for which we competed against other countries and won.
It's a question of wage, of course, as you mentioned.
Ms. Sophia Leung: Yes.
Mr. Richard Bertrand: For example, in our industry, to make a simple comparison, our charge-out rate with overhead and salaries of the employees and the fringe benefits will run us about $40 to $45 an hour, depending on the shipyards you're talking about across Canada. If you compare that to Germany, it's $105 to $110 Canadian equivalent for the same skilled worker. And he doesn't have any skill sets that are different from ours. In Japan, it's $90 to $92 Canadian an hour equivalent.
You will say Japan and Korea have a greater economy of scale and they have greater efficiency, and of course have invested billions of dollars in their infrastructure. But I think most of us will say that we can compete in niche markets where we choose our niches and we work them. Sometimes we find ourselves falling short in spite of trying very hard.
As Mrs. Wayne suggested repeatedly, for every ship repair job we get, we bid on 10 to 12 to get one. In new construction, it's not unusual to bid on 25 to 30 jobs to get one. The same can be said in many manufacturing industries.
So we think we can compete. Sometimes the difference between having to bid for 30 jobs to get one and only bidding on 15 to 16 jobs would be the measures provided and suggested in this bill. So we cannot take on Korea, as far as I can tell, head to head on bulk carriers and product tankers, and we don't build VLCCs, because we don't have the infrastructure to do that.
However, when we look at the kind of product niche that we've all been working on, it's amazing the segregation across Canada from the west coast to the east coast. All of us are aiming sometimes at similar markets on ship repair and we touch one another from time to time. But by and large, we've developed a skill set and specialties, which is quite nice, and they're quite synergetic in many ways. In fact, many of us are, although it's not widely known, talking about team building, about joint ventures, about getting together on projects both of domestic and international interest.
So we believe we have an industry that's there. We are putting into ships today technology that you won't see in a 747. We think it took an awful lot to get there, and all we need is a little help to get over the hump in certain particular markets.
The Chair: Mr. Chernecki.
Mr. Robert Chernecki: Thanks for the question, Sophia, it's a good one. But let me try to answer it this way. The auto industry is one I know well. I come out of it. Let me take you back to Lee Iacocca's days, when the lights were off in Chrysler. They called the whole industry fat and they said quality was poor. They did everything to try to brand that industry, saying it wasn't worth saving, that we had to let it go, it was smokestack, it wasn't “the future” of the country. Have a look at it today. Have a look at it today in terms of what those corporations were able to do with a lot of hard work. And one of those initiatives was the Auto Pact, where government finally said to themselves, wait a minute here, we're going to find a way to protect our industry.
Now that's under some scrutiny today by the WTO, as you properly point out, but I would compare that to what's happening here, that there is no measure to assist this industry in coming back. It was assisted many years ago, but that's gone to the wayside. But the auto industry was in many ways similar to what's happening today with the shipbuilding industry, and look at it today. Without question, if we had the same kinds of initiatives that are offered to the other countries in the world, I'm absolutely convinced, although I don't live in this world every day, from what I've seen—and I've toured these shipyards, and the equipment I've seen, and the people, employers and workers—you'll have a hell of an industry. You'll have more surplus in the federal government than you have today, and you'll be wondering what to do with it, if you put people back to work in this country in this industry.
Ms. Sophia Leung: I want to say you have done a good job of convincing us, and you have a friend there too. Thank you.
The Chair: Mr. Dubé.
Mr. Antoine Dubé: I am going to make a few comments and I am going to end with a question related to a possible amendment that may satisfy the people from the Shipbuilding Association of Canada. This amendment would deal with the tax credit: who gets it and in what circumstances. But I will come back to that at the end.
First of all, I think that Mr. Bertrand gave you a good answer to your question, Mr. Szabo. He made some important distinctions. I am from Lévis and the same thing was said for Saint-Jean. Often, when we look at the government's fiscal balance sheets, we see that they boil down to the simplest expression, and some media, at home and elsewhere, have unfortunately encouraged that. A contract is not distinguished from a loan, from a loan guarantee or a grant. It is the classical mistake. Everything is thrown into the same bag and totalled up. I do not blame Mr. Szabo for having done so. It is a good question and it had to wind up today. I even thank him for having raised it.
So, every shipyard prefers a demonstration, but now I have two questions. First, why did I present this bill to the Finance Committee? Because two of the three measures are fiscal in nature and therefore are the responsibility of Finance. The loan guarantee program may concern both departments, International Trade, through the EDC, and the Department of Industry itself. But where two departments are concerned, the Department of Finance is well situated.
As for my other question, you are going to find it curious, but I am not always very orthodox in my approach. I would like to defend Mr. Manley. Mr. Manley has been questioned by you, Ms. Wayne, by you, Mr. Herron, by the people from the New Democratic Party, by me and others. Sometimes, in the House, we asked questions of the Minister of Finance or the Minister of International Trade, but each time, Mr. Manley—you know how it works—rose on behalf of the government to answer our questions. I can tell you that you have to read between the lines and I think he would like to do something, but I wonder why the Minister of Finance did not answer. I get the impression that if the situation were reversed, and Mr. Manley were the Minister of Finance, he would agree with us. Of course, he has not said so publicly, but I sense that he is quite sympathetic to the bill. Furthermore, you may have noticed that he did not vote against the bill during the second reading. That concerns the Minister of Finance, but the Minister of Finance always has Mr. Peterson say that he cannot. Even if the interests are in trust, he would not want to be perceived in this way.
I wish to say to everyone here, to the people of the Liberal Party, and the rest, that all the opposition parties are agreed. The Canadian Alliance may be split, but the members say that there is not a problem. If you wish to pass Bill C-213, Mr. Minister of Finance, you will not be criticized for doing so. You will be applauded.
I close on that, but I am a little sorry for Mr. Manley, who from one time to another has to answer in the House for two other departments, which really are not within his jurisdiction. He is only obliged to answer as the Minister of Industry.
I do, however, have some criticisms of the government. In its answers, the government always refers to the so-called buy-national policy. Recently, we bought the famous Newfoundland ferry. You did not talk about it. Between Newfoundland and Nova Scotia, there is a used foreign ferry. Moreover, it is the same thing between the Magdalen Islands and Prince Edward Island. Surely you recall that; it happened three or four years ago. We spent $60 million. Now, there are people in this area who are asking a question: if the government or a Crown corporation bought a used ferry and had it repaired, would it be subject to Canadian regulations and would it pay, like a private company, a 25% tariff? It is a good question, is it not? Would a Crown corporation be subject to that? If it were a private company, totally private, it would be subject, but the government is exempt.
Sometimes, when I talk about the government, I do not mean the Liberal Party. You know that the government and the Crown corporations are a big machine. I like to raise examples of inconsistency like that.
I raise another example of inconsistency. You are going to tell me that it is smaller, but do you know what kind of plans are used to build the Coast Guard ships, the ones we were talking about this afternoon? Do you know who designs these plans? American engineers. And the Canadian Shipowners Association is asked to pay ice removal and navigational aid charges while the Americans are exempted. We do not even trust Canadian engineers and naval architects to build small boats for the Coast Guard. I raise that as an example.
Ms. Wayne raised the question economic of spin-offs. I know that the Davie Industries average for a long time was $100 million. One year, a long time ago, they were even $150 million. That happened once. Let us say that the cost of labour accounts for half of that: 50% of $100 million, on average. From the wages paid, we have already calculated that a total of $20 million came back to the governments in federal and Quebec income tax.
Let us look at the guaranteed loan program, the first measure. The U.S. has applied this since 1938. It goes back to the 1930s. They have had no losses; that is, they have had losses, but they have repaid them with interest. They have suffered no losses. This measure makes things easier and generates tax benefits. And I am not talking about GST. So this is money the government is depriving itself of by not acting.
There is also the issue of productivity. I think that I did not spend enough time on that earlier. There are people who told the Industry Committee that all the major Canadian industries were losing in productivity. The gap with the U.S. is widening by 1% a year. There is no point in thinking that, for now, the weakness of the Canadian dollar is helping us for exports. One day, that will blow up in our faces. That also has consequences.
The gap continues to increase, but in shipbuilding, in the past 10 years, productivity has increased by 46%, as you can read in the report. Maybe it was not productive enough, but I wish to emphasize that it is one of the industries that made the most progress in this respect. When Mr. Bertrand presents his rates, he talks about hourly costs that his business asks for to build a boat. Where labour costs are concerned, I have provided you with a table. There is Taiwan and Greece, but Korea is not there. All the other countries have higher labour costs, that is, a higher hourly rate for employees. We are productive and we have good technology.
(i) to the shipowner for the construction of a Canadian ship,
Why did I put that in? It was to encourage our Canadian shipowners, who see some direct advantages in it, which may also occur indirectly, because if the builder has it, he will be able to offer the Canadian shipowner a good price.
The Quebec tax credit is like that. It has the same effect since, if he is able to sell you a boat at less cost, you will have the same benefit. Obviously, in the case of a foreign boat, the tax credit was there. I know that time is passing and that we said we would sit until 9 o'clock. If you were to make an amendment, what would it be, considering that we are concerned with all the Canadian shipowners you represent, Mr. Morrison? I would like to have your comment on that.
I would like you to comment on this amendment so that I know whether, at first glance, it would suit the Association. If, by wanting to do the right thing, I did the wrong thing, I would be unhappy.
The Chair: You did that in one breath.
Mr. Richard Bertrand: My own way of looking at it would be that as a current recipient of the Quebec tax credit program, I find it easier to offer my client a reduced price, because they tend to go on a competitive basis, and I have an edge. But, as we heard earlier from Mr. Beaupré, it's just a matter of who pays the tax on these revenues. I think the shipyards are willing to do that. That's what I would do for ourselves, anyway. But the shipowners may take a different view of things.
The Chair: Mr. Morrison.
Mr. Don Morrison: I think our principle would be that if we can put the shipowners in the position of being able to replenish and renew the fleet, it becomes axiomatic that the shipyards will be looked after. Our approach would be that those benefits start off with the shipowner, the people who are going to spend the money, that the tax credits go to the shipowner.
I can understand where a shipyard wants to say—
Mr. Antoine Dubé: So you would not see an amendment. You would be satisfied with that.
Mr. Don Morrison: The amendment we would like to see is what the level of the refundable tax credit would be. That's why I spoke earlier about the Minister of Industry or the Minister of Finance having the regulatory ability to say what is the implementation of the act.
If you're talking about a tax credit at the level of 3%, 5%, or 7%, it doesn't matter. It won't work for us. If we're talking of a tax credit level that is actually going to affect the cost of the purchase of a ship, taxes in and taxes out, of around 18% to 20%, then we think we have something we can work with, with the right economics.
The Chair: Thank you.
Are there any further comments? Mr. Cairns.
Mr. Peter Cairns: I just want to take one minute, if I can, to clarify something for Mr. Szabo. It seems to me that he was concerned about the outlay of money that the government would have to provide in, for instance, a loan guarantee scheme. The ultimate risk to the government is if there is a default. Therefore, one must of course ensure there is no default, and have a system that gets around that.
If you use the United States as an example, under their Title XI program they have funded some $3 billion worth of ship construction since 1996. They have had one default for $1.1 million. They've administered that program. They charge fees to enter that program. After their administration costs, they are $47 million to the good, so it's actually been a profit-making scheme for them.
Mr. Paul Szabo: A loan guarantee would have an enormous impact on the ability to attract low-cost financing.
Mr. Peter Cairns: Unquestionably.
Mr. Paul Szabo: And that doesn't cost the government anything other than its provision of the leverage. It certainly has the capacity to serve that, provided it's creditworthy.
Mr. Chairman, we've certainly opened up I think the principal discussion here, which was Mr. Dubé's intent, as stated under subclause 3(1):
The purpose of this Act is to promote shipbuilding in Canada and make
Canadian shipyards more competitive
Mrs. Wayne referred to, and I agree with her, the integration of the interests of the departments of industry, international trade, and finance. They have to be involved. Given the wisdom that's been shown here by the people who are in the industry, both as shipbuilders and as ship purchasers, I believe this committee really should hear from those three departments specifically on whether or not they feel this bill, and what it's proposing, is the best way to achieve those objectives.
Is there anything else going on that may help us to resolve this issue about who should get the credit and where we would get the best bang for the buck? I'm not sure we have the expertise individually to be able to make that assessment without having the opportunity to seek input from, for instance, the finance department on whether there should be a refundable tax credit as opposed to an upfront grant, which might improve the cashflow situation, since you don't get a refundable credit until after you file a return.
I mean, this bill does not prescribe which section of which act, how much, and at what rate, etc. We're guessing now. I think we have to carry it one step further to find out whether or not it's worth pursuing it down that route if in fact there may be a more vanilla, more precise, way of indicating to the industry, regardless of where they are on the chain, how much this may be.
Because you have to know whether the industry...and I think we were telling you some of those examples...15% to 20% would clearly put us competitive. In some cases, though, it could be the difference of only 5% or 6%. I'm not sure whether or not a one-size-fits-all might be here.
So I would certainly recommend, if it's with the agreement of the committee, that we seek that advice and commentary and feedback from those departments, and then be given an opportunity to question those departments on these important questions.
The final recommendation I would make is to ask if we could also hear from the researcher who was assigned to Mr. Dubé from the private members' business office to draft this bill. The members probably will agree that this is quite a unique bill in that it looks more like a motion, because it doesn't have the specifics of which act, which section, and what percent, etc. It puts everything down in the regulations, or it says, “If you pass this act, the government has to go away and create regulations that amend certain acts to do the things I want it to do.”
By the way, the very last thing says this:
The Governor in Council shall not make regulations amending or
repealing any regulation made under this act.
It's almost circular. This is a dynamic thing. It would almost never end. I think it's very creative. If it works, you may have found, and perhaps inadvertently, a way for members not to have to agonize over all the details of crafting a bill. But I want to be absolutely sure that this bill and any or all of the provisions included in it in fact are workable under our system, because I'm concerned that relying on the Governor in Council to amend acts as they see fit to do certain things takes all of us out of the loop. The Governor in Council is just the cabinet room, and I'm not sure whether or not that's in the best interests of anybody.
So we should ask the crafters of the legislation whether or not we are in fact going to shut ourselves out from the legislative process. Once we give a non-specific bill royal assent, you'll never know what happens and when, and you'll not have any input, other than lobby input, which probably is not good lawmaking.
So I'd like to hear at least from the drafter of the legislation as to why he's suggesting this format for this bill to deliver what Mr. Dubé had asked him to deliver.
The Chair: Just so that we're clear, above and beyond the drafter, you want to hear from Industry, International Trade, and Finance. Okay.
Mr. Antoine Dubé: I have been here for seven years. We know how bills work. They are usually presented by the government. I said a while ago that when a bill is presented privately by a member, whether from the government or the opposition... Ms. Redman herself presented a bill respecting competition and so she knows the process.
The idea is not to take the place of a department or the government, because it is a departmental responsibility. You saw that the purpose was to give a sort of directive to the government: create a program. We are not telling it to create a program worth so many millions of dollars. If I had said 87.5%, my bill would not have been acceptable because this is a departmental responsibility. I can invite the legislative counsel to appear, the one who helped me make my bill acceptable and arrange it so that we can proceed with a clause by clause study. There is usually a session preceding this study. It is always planned that way.
Yes, we could invite someone from the Department of Finance. I know that some Finance Canada public servants have already taken a look at it. So, they would be able to answer your invitation very quickly because they have followed this matter as closely as I. If the Committee invites them, they will certainly appear. I think that their opinion is ready.
Today's session, however, was necessary so that you, the legislators from the other side, and all the others realize two things: the importance of the measures and their urgency.
Of course, we must accept your idea, but I think we could have these opinions very quickly. Studies, we know what they are. If we have to wait another year, there will not be many more shipyards left open. I am not begging, but I would like us to end.
The clause by clause study was planned for June 7 at the latest. These people could each explain their point of view at the beginning of the session. By then, I am asking those who are suggesting amendments to provide us with more precise wording, and the legislators will decide in their wisdom.
I am prepared to come back to the committee any time.
The Chair: Mr. Dubé, so that I'm very clear on this, we won't be sitting here a year from now dealing with this. We'll have an answer before then; that's for sure. But as for Mr. Szabo's question about inviting some of the officials from the departments that are indeed part of this bill, that is I think a fair thing to do.
Mr. Antoine Dubé: Oh, yes.
The Chair: This is, after all, really the first meeting we've had on this issue. We're fully cognizant of the fact that members of the House of Commons voted to bring this bill to this committee. We understand that as well. But we're not going to affect the quality of our work because of speed. We have to do this properly. We have to also get answers. I would feel very poorly if Mr. Szabo's questions weren't answered by those officials. Obviously he feels he needs to get to the bottom of certain points that he may feel uncomfortable with, or at least, he needs to hear the answers first. So we're going to have to follow the process and give the bill the respect it deserves.
Mr. Robert Chernecki: Could I just raise a question?
The Chair: Yes.
Mr. Robert Chernecki: When is the House adjourned for the summer?
The Chair: It depends.
Mr. Paul Szabo: No later than the 23rd.
Mr. Robert Chernecki: No later than the 23rd. So what happens to this? I know the answer to the question.
Mr. Paul Szabo: It would come back the middle of September.
Mr. Robert Chernecki: The middle of September. So what are we going to do from June 17 or 18 to September—anything?
The Chair: Well, I have a lot of work to do if you want to come and help.
Mr. Robert Chernecki: I'm talking about shipbuilding. If you want to build some ships, we have a couple of yards you can go into, no question.
But I raise the question, and I think people deserve an answer, about what we're going to do. The worry, quite frankly, is that the rest of this thing will sit for the summer, lose its value to some people, and before we know it we're back to where we were. We're not going to let that happen as a labour movement. This issue is so crucial to us.
The Chair: But I don't think it's just a labour movement issue, and I don't think you should appropriate ownership of this issue. I think it's an issue for the economy and it belongs to everyone.
Mr. Robert Chernecki: Fair enough.
The Chair: You know, it's—
Mr. Robert Chernecki: We've been waiting for so long—
The Chair: No, but to be very clear on it, we care about this issue—
Mr. Robert Chernecki: —that's why we're taking ownership of it now. We were out there all by ourselves quite a while ago, so....
The Chair: Mr. Szabo.
Mr. Paul Szabo: I would like to explain, just for Mr. Chernecki's information or advice, the normal cycle for a private member's bill. We've voted at second reading in the House and it's been referred to committee. The committee has up to 60 sitting days to return the bill to the House in whatever...we must return it within 60 days. Once it's returned to the House, it goes to the bottom of the order paper of private members' business, so it could be up to 30 sitting days before it would come to the House for its report stage.
After report stage, it would go back down to the bottom again, and 30 sitting days later it would come back for third reading. If it passed third reading, it would then be sent to the Senate, and they have up to six months, I believe, to do their work. They may call hearings and witnesses, etc., before....
So even if we started today and just said “all those in favour; opposed; carried” and sent this back to the House, nothing would happen by the summer. The cycle is several months, in the best of times.
Mr. Robert Chernecki: No, I understand the parliamentary procedure, I think, but my question is, can there be something done during the down period? We've been asking for a consultation on this issue for months, having the stakeholders get together, having a good discussion about issues. I don't see any reason we couldn't.
Prior to Antoine's bill, one of the key issues of our campaign was that we need to get the stakeholders together to have a good discussion—government, industry, and labour. I don't want to see that lost in the transition here.
Mr. Dubé's bill, obviously, is more than welcome by everyone. But I think there's an argument to have some kind of stakeholder discussion during the summer. Why not?
Mr. John Herron: On that point, Mr. Chairman.
The Chair: We can do it, Mr. Herron. Then there's Wayne and Mr. Dubé.
Mr. John Herron: Just very quickly, the concern is that if we don't have the capacity to finish the clause-by-clause aspects of this bill before the House rises for the summer, there is nothing that would preclude the committee from finishing the clause-by-clause work before the House reconvenes in the fall, so that the clause-by-clause aspect is done, so it's reported to the House, and we don't have to invest sitting days in the first couple of weeks after we get back to sort this out.
We could actually accelerate the timeline to some degree by at least getting the clause-by-clause portion ready for the House when it does reconvene, if we can't get our work done by June 16. That would be a recommendation I'd like to put forth.
The Chair: Well, this committee is not known for being slow. We're pretty quick; we put a lot of work through here.
Mrs. Elsie Wayne: My understanding is that the Minister of Industry has now agreed there will be discussions held with regard to shipbuilding and the problems.... He just announced this in the past week. We picked that up. Now I'm not sure what his program is or how he plans on doing this, but my understanding was that he said before September he would probably be meeting and having some discussions. I'm not sure if it's him or if he's putting somebody else out there to do it. But that was my understanding, that this was to take place, Mr. Chairman.
Les, do you know anything about that?
Mr. Les Holloway: Yes, we know this consultation process has been kicked off. I have the document that is being circulated, and meetings have been arranged with provincial governments.
We have a concern over it. I have a concern over Minister Manley's comments the day before yesterday in Atlantic Canada, as I stated earlier, where he's talking about this industry again as a sunset industry. He's falling back into that mode again, it seems.
This process we have concern over is in wanting to try to create some more ownership of the process. We don't have a problem with consultation if it's in the true concept of what consultation should be, but already we know of comments that have been made to stakeholders reflecting a view that in fact a lot of the measures that are here aren't really measures that would help the industry and such.
There are a number of things in this report that are very questionable, and it looks very much like it's a justification process. I just want to state that we have some concerns.
One of the points I wanted to raise is that we hope this consultation process that Minister Manley has kicked off, which I think was in the spirit of some of the recommendations coming out of the industry committee report, isn't going to circumvent the work of this committee, and that this bill will be proceeded on and will hopefully go back to the House in the form of legislation.
The Chair: So that everybody knows, we have to report this bill to the House by October 4. That's the absolute latest date. But we want to report it as soon as possible without creating problems in terms of process. We want to get the answers, as I said earlier. We want to ask some questions. I think that's fair. I don't think there's a problem with that at all.
Mr. MacPherson, and then Mr. Dubé.
Mr. George MacPherson (Shipyard General Worker's Federation of B.C., Marine Workers' Federation, CAW): We have the same concerns that Les has just raised. The honourable member down here raised the question of the process to try to give us a sense of timing on the thing, and it sounds to me, if we look at how you people go through your process and then send it off to the Senate, you're maybe looking at up to a year before this thing is complete.
Our real concern here on the west coast, and I'm sure across the country, is that we keep hearing rumours about a fall election. If a fall election happens, then, we believe, what happens is the bill just falls apart and we have to start the process all over.
Clearly—we've put an awful lot of work into this thing and an awful lot of effort—if there's any way we can speed this process up and get this thing moving along, we're prepared to meet at a moment's notice. Just tell us where and when and we'll be there.
The Chair: I agree.
Mr. Antoine Dubé: When I came to the committee to plan the timing, it was decided that the clause by clause study would take place on June 7. It is not up to me to tell the committee what to do, but that is what was planned. I have the impression that the people from Finance are capable of giving an opinion by that date.
Mr. Szabo, what you are saying is true: the maximum time is more or less that. I would not like to bring up bad reminders for everyone, but let us take the example of Bill C-20. When the government decides to give priority to a bill, it can do so. In the case of a bill amending the Criminal Code respecting criminal groups, I have even seen the first, second and third readings take place the same day. It is true, but where there is a will, there is a way to shorten the time involved.
This is political advice, but I must say that something else must be done before saying that. The government created a new tourism commission before the act was passed. The bill is being studied, and the commission has been running for a year. I studied this aspect and I know that it is possible for one of the ministers to decide to create a program before the act has been passed, with the intention of making it official afterwards. It is possible.
On the other hand, I realize that in the case of two other fiscal measures, the ones respecting lease financing and so on, minister is going to implement them in his next budget. I think that is quite usual. By doing so, however, and by giving the indication that it is being done, a signal is being sent to the people who have to do the planning or to make an argument with a view to getting contracts. It is no longer the same thing. You know that it is coming and you can prepare your arguments. You know that you need time to prepare plans and specifications and conclude the deal. The signal would be an extra tool in the hands of the industry people.
All that is needed is a statement by the minister or someone in the government: we intend to carry this out as quickly as possible. That way you prepare people...
As for the other provisions, that is not unusual. As you well know, Mr. Szabo, 90% of bills give powers to ministers and are passed by the Governor in Council.
I do not wish to go on too long because I feel a nice willingness this evening. I do not want it to become divisive. People have made a coalition. I sense that the people in the Liberal majority are going to vote in favour of the principle, and I would not like to spoil this with little technical details. I think what must be remembered is that people would like it to take place quickly.
The Chair: I just want to make sure everybody gets the message I got tonight.
First of all, the presentations were excellent. You made your case in a very eloquent manner, and you can tell. It's closing in on 9:30 p.m. and we're still here. We extended this meeting because we felt it was an important meeting.
Secondly, the history of the finance committee in relationship to this particular issue is pretty clear. We mentioned this particular issue in our pre-budget consultation report, which means we felt it was an issue that required the attention of the government. It's in black and white for everyone to read in chapter 3 on page 88.
But there's also the issue raised by Mr. Szabo, which is an important issue in relationship to the process. We want to get some answers to some fundamental questions. That's our responsibility as legislators.
As far as speed is concerned, we will work as quickly as we can without compromising the quality of our work. I think that's a fair thing to do.
Is that clear?
I think the meeting is just about to end, so Elsie, if you want to say anything, any parting words....
Voices: Oh, oh!
The Chair: Notice I didn't say “any parting shots”; I said “words”.
Voices: Oh, oh!
Mrs. Elsie Wayne: I want to thank the chair. I really do. And I want to thank all of our people for coming. We'll all continue to work together.
The Chair: Thank you very much. The meeting is adjourned.