INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, December 14, 1999

• 0904

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I now call the meeting to order pursuant to the committee's mandate under Standing Order 108(2), a study concerning productivity, innovation and competitiveness in the shipbuilding sector.

We're very pleased to welcome here today a number of witnesses: from the Shipbuilding Association of Canada, Mr. Peter Cairns, president; from the Chamber of Maritime Commerce, Mr. Raymond Johnston, president, and Mr. Jim Campbell, vice-president and general manager; and from the Canadian Shipowners Association, Mr. Donald Morrison, president, and Mr. Réjean Lanteigne, vice-president, operations.

I would propose that each of the witnesses do their opening statements and then we would move to questions.

Unless you've agreed on a different order, I'll begin in the order as listed, with the Shipbuilding Association of Canada.

Mr. Cairns.

• 0905

Mr. Peter Cairns (President, Shipbuilding Association of Canada): Madam Chairman, ladies and gentlemen, the shipbuilding industry appreciates this opportunity to appear before the Standing Committee on Industry.

I understand that you have already heard testimony from Industry Canada. It is therefore my intention this morning to focus on the need for a shipbuilding industry in this country and to clarify misperceptions about the state of the global industry and the role Canadian shipbuilding can play in both domestic and international marketplaces.

The Shipbuilding Association of Canada was formed in 1995 and is an outgrowth of the Canadian Maritime Industries Association, which ceased operation the previous year. The objective 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.

In any examination of shipbuilding, one must always be aware of three important premises that have and will continue to have a significant effect on the industry.

Firstly, shipbuilders the world over can no longer rely on preferential markets such as those that were once provided by their governments or navies. They must seek external markets.

Secondly, few, if any, free market forces are at play in the industry. Shipbuilding has arrived at its present state not by natural market forces but by political manipulation, normally in the form of some form of subsidization. Too often this point is forgotten and discussions of the Canadian industry focus on the role of the market in determining what companies succeed or fail. The market in this industry does not make that determination; governments do.

Thirdly, access to competitive financing is a key element in an owner's decision to place an order with a shipbuilder. This is not to denigrate the more traditional factors that determine competitiveness. Suffice it to say that one may put together a good technical proposal at an excellent price, but unless the deal is attractively financed, it is unlikely to be consummated.

What are the market prospects for global shipbuilding? In most discussions on shipbuilding, the effect of the Asian financial crisis is hardly, if ever, considered. Just as the fall in the price of a barrel of oil negatively affected the offshore oil industry, so did the Asian financial crisis have a severe downward effect on freight rates. Both of these events adversely affected the world shipbuilders who supply the ships, rigs, and structures for both these markets. Regardless, there are several significant factors that are not expected to change in the foreseeable future.

The first of these is that in excess of 75% of the world's goods will continue to be transported by sea. The second is that maritime transport will be the most cost-effective and environmentally friendly mode of transportation for the foreseeable future.

Did you know that using 5 litres of fuel, one ton of merchandise can be carried 6 kilometres by aircraft, 100 kilometres by truck, 333 kilometres by rail, and 500 kilometres by sea?

Last year, Germanischer Lloyd, the German classification society, produced a ten-year forecast of world shipbuilding requirements based on initial research by the Institute of Shipping Economics and Logistics of Bremen and Ocean Ship Consultants of Liverpool. They concluded that due to age, increased safety requirements and port-state control regulations, nearly half of the world bulker fleet, 3,000 ships, will have to be scrapped by the year 2006. This will result in deliveries during the period of some 3,200 ships.

The demand for tanker tonnage was predicted to stabilize at today's levels. They predicted that the requirement to transport crude was being replaced by the need to transport products such as liquid natural gas and liquid petroleum gas. About 1,200 tankers were forecast to be removed from the fleet and replaced by 1,500 tankers. The demand for liquid petroleum gas tankers was expected to produce a continuous new building effort of 60 ships per year. An increase in the demand for chemical tankers was forecast to result in deliveries of some 500 ships over a 10-year period. The new building volume for general cargo ships during the period is forecast to be some 9,400 ships.

The growth in container ships is expected to continue at between 5% and 10% per year. There is a market for ships for the foreseeable future. Japan, South Korea, and China are expected to continue to dominate the shipbuilding industry. They presently have about 70% of the market share. Canada is a very small player with only 0.04% of the world market.

• 0910

As a consequence, federal officials tend to write the industry off. The proof of this is that in Industry Canada there is not a marine, let alone a shipbuilding, directorate.

Recently it has been stated that the Asians are not standing still waiting for the rest of the world to catch up. I would like to point out that the Koreans, as an example, play from a different rule book, and their government sanctions these rules. This is one of the reasons the global industry is in such turmoil.

Daewoo is one of the world's largest shipbuilders. Daewoo is carrying a debtload that would not be tolerated in North America or Europe. Daewoo's twelve main divisions have posted an accumulated debt of U.S. $73 billion. Debt-to-equity ratios of 400% to 1,000% are not uncommon in Korea. Korean banks have been accused by the European Union of using IMF bailout money to refinance the debt of companies such as Daewoo.

The European Commission has investigated nine orders for ships from South Korean yards and found that none was clearly profit-making. The reported prices for the nine orders were between 13% and 40% below estimated costs.

There are indications that Korean yards fix vessel prices according to the level the shipyard perceives the market will bear rather than by a bottom-up cost-based estimate. The European Union has indicated that it will be taking South Korea before the World Trade Organization for alleged unfair subsidies to shipyards.

Overcapacity is an issue in the global industry, and officials are quick to use this as a reason why the Canadian industry is not worth saving. I would point out that overcapacity is present in virtually every successful industry. There is equivalent overcapacity in the global aerospace and automobile industries. Free traders will argue that market forces correct overcapacity problems naturally, that the efficient survive and the inefficient go under. Because markets in shipbuilding are artificially manipulated, inefficiency can be rewarded and small efficient yards never get a chance to compete.

Western governments, including Canada, have stood by and let this situation develop. Now that the situation is in extremis, the prevalent sentiment in this country appears to be to pull the plug on the whole industry. We contend that governments need to acknowledge their role in this affair and begin working conscientiously with industry to correct the situation. We would also argue that it is in Canada's vital economic interest not to have the construction of vessels and the carriage of its trade totally in the hands of foreign powers.

Perhaps too much emphasis is being placed on the global shipbuilding situation. We have no intention of competing head to head with the Koreans and Japanese. A more important question is the role of the shipbuilding industry in support of Canada's domestic fleet and its offshore oil industry.

Canada is developing an efficient shipbuilding industry. It is not large; neither does it have to be. As you well know, we employ at this time about 5,000 persons. We have the capacity to employ 12,000 with no further investment in infrastructure.

The Industry Canada brief went to great lengths to show that overcapacity in Canada was tracking in harmony with the global overcapacity. We consider this conclusion to be false. A comparison of the Canadian shipbuilding industry to the global shipbuilding industry in terms of gross tonnage leads to erroneous conclusions. As gross tonnage is a measure of interior volume, countries that build larger vessels will statistically dwarf builders of small vessels.

The west coast shipbuilding industry is a case in point. Since 1949, 2,550 vessels have been built in British Columbia, but only 20 of these have been over 5,000 gross tonnes.

Is there a domestic market for shipbuilding? There are 174 self-propelled vessels greater than 1,000 gross tonnes in the Canadian registered merchant fleet. In addition, there are 253 tugs and 1,312 barges. Canada's Great Lakes fleet averages 30 years of age and will need to be renewed. Canada's tanker fleet needs to be double-hulled by the year 2010.

Presently there are 26 ships being constructed for Canadian interests, 10 of which are being constructed in Canada and 16 offshore. Of the ships being built offshore, 4 are too large to be constructed in Canada; the remaining 12 could have been built here. For reasons of cost and financing, these Canadian owners have chosen to build in foreign shipyards. If Canadian yards had the means to compete for these contracts, it is unlikely I would be appearing before you today. There is opportunity if the playing field can be levelled.

• 0915

The Jones Act and North American Free Trade Agreement negatively impact on Canadian shipbuilders. The United States and Canada are each other's largest trading partners. Bilateral trade is calculated at $312 billion U.S. This has led proponents of free trade to declare that NAFTA works.

While NAFTA has positively affected millions of people, it has done little for Canada's shipbuilding industry. The Jones Act was excluded from NAFTA, and on January 1, 1998, all other tariffs on shipbuilding and ship repair disappeared. We are now faced with the ludicrous situation where a Canadian company can build in the United States, take advantage of their special financing provisions for shipbuilding, and then import the vessel duty-free for use in the Canadian coastal trade, while the American domestic market remains closed to us.

It is our industry's belief that protectionist measures such as these should be eliminated between nations that espouse free trade. The United States is Canada's logical market. Presently 169 ships are being constructed for U.S. interests. Any breakthrough into the U.S. market would have a positive effect on our industry.

In an attempt to level the playing field, the Organisation for Economic Co-operation and Development, after years of negotiations, produced an agreement to prohibit direct and indirect subsidies in shipbuilding. The agreement was scheduled to enter into force in 1996. The decision by the United States—one of the key players behind the initiative—not to ratify it has put the success of any future agreement in doubt. Our industry believes the elimination of subsidies and unfair trade practices is essential if shipbuilding is to survive in Europe and North America.

Earlier this year the Shipbuilding Association of Canada joined forces with organized labour. We have produced a joint strategy document and forwarded it to government, proposing seven initiatives for the government's consideration. I will not go into them in detail now, as I understand they are well known to you. I am prepared to speak to them during the question period if you so desire.

What is disturbing to us is that with few exceptions, there is a lack of concern for our industry. The prevalent attitude appears to be that were the government to do any of these things for the industry, a dangerous precedent would be created that would result in having to do the same for all industries. This is illogical. Special provisions are put in place for specific industries all the time. The impression we are left with is that the government is just not willing to sit down and discuss, in good faith, the problems of the industry and work with us to find solutions.

In this, the federal government is taking a minority position. The provinces support a review of policy, as do many towns and cities, chambers of commerce, boards of trade, opposition parties, unions, the Atlantic Liberal caucus, and as of the paper this morning, the finance committee of the House of Commons.

I acknowledge that the federal government does give limited assistance to the industry. You are familiar with the 25% tariff on non-NAFTA vessels, the requirement to replace and repair government vessels in Canada, assisted rationalization, accelerated CCA, R and D credits, and EDC funding. These are useful measures and important to the industry, but they are not effective in today's competitive market. The paramount issue is that the market environment is continually changing, and support measures must as a consequence be reassessed.

It is the association's evaluation that government assistance needs to be improved in the financing area. But how can the problems of an industry be solved if one cannot enter into serious dialogue with the people who set the rules?

When people of good faith work together, good things happen. If this industry has no future, why is our business with EDC increasing every year?

The most significant benefit of a healthy shipbuilding industry relates to jobs, particularly in regions where well-paying, high-skill jobs are scarce. Approximately 6,000 direct jobs would be created with full order books, given the present shipbuilding infrastructure. Shipbuilding jobs in Canada produce an average sectoral wage that is 33% more than the Canadian norm. On average, 80% of the construction fee paid to a shipbuilder stays in Canada.

Another important reason for maintaining a Canadian shipbuilding industry is that the perishable high-technology skills associated with modern ship construction will remain and continue to grow in Canada. Loss of these skills will have serious repercussions for the maritime defence of Canada.

In the maritime nation called Canada, there is a role for the Canadian shipbuilding industry, but in order for us to survive, it must have access to the world's markets. As the 21st century unfolds, Canada will still have the need for ships. There is an offshore oil and gas industry in its infancy that will have to be supported. There is no reason Canadian industry should not play a major role in these enterprises.

• 0920

We have no desire to force Canadian shipowners to build in Canada. Our industry wants to compete on its own merit, but we cannot get there from here without federal government backing. Remember when the aerospace industry in this country was in the same boat, literally.

Presently we have 0.04% of the world market. An additional 0.06%, for a total of 1% of the world market, would go a long way to ensuring a viable, energetic, high-technology shipbuilding industry in Canada. The product is not only ships but also well-paid, highly skilled, useful citizens. Who would not want to make that investment?

Thank you.

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

I'm now going to turn to the Chamber of Maritime Commerce. Mr. Johnston, please.

Mr. Raymond Johnston (President, Chamber of Maritime Commerce): Thank you. I appreciate having the opportunity to make a presentation to the committee this morning. I'll be following a handout of slides, which I think has been distributed.

The Chamber of Maritime Commerce represents about 100 members engaged in marine transportation activities, principally within the Great Lakes and St. Lawrence River waterway area. The chamber is binational in scope and represents a very broad base of marine interests. Our members include major shippers within the Great Lakes and internationally, carriers both domestic and international, ports along the waterway, and a variety of other marine service organizations. The focus of the chamber is on the development of efficient and economical marine transportation systems that support the competitiveness of Canadian industry.

I'd like to make a few comments about waterway shipping. It's an area I have a fair amount of personal experience in. For the past 23 years I've worked with a major shipping company in Canada, and recently I took on this assignment with the Chamber of Maritime Commerce.

In fact many industries are dependent on the Canadian merchant fleet for the delivery of raw materials. The steel industry in Canada, both in Ontario and in Quebec, relies on the domestic fleet for deliveries of iron ore and coal. And certainly Canadian grain exports rely heavily on the domestic fleet for shipments of western Canadian grain from the Prairies through the seaway system.

The industry has adapted to global competition, and really it's that that is driving the need for competitive marine transportation. A case in point would be that of the steel industry, where in the past its main competitor was a steel company next door. Competition expanded to the United States, and that became the competitor. And clearly now competition from foreign steel-makers in the Far East, Europe, and developing nations is really the marketplace in which companies such as Stelco and Dofasco must compete.

From a waterway interest point of view, in particular the domestic shipowners and the shippers, access to competitive shipbuilding and ship repair services is vitally important for this waterway.

Shipbuilding in Canada is another area where I also have some experience and can speak with some confidence to compliment the industry on the quality and the excellent work it does. It is a reliable industry, unlike many international shipbuilding operations.

One very unique feature of the Canadian shipbuilding industry, particularly in the Great Lakes, is the unparalleled experience this industry has with constructing self-unloaders. Self-unloading vessels are highly technologically advanced vessels used by major shippers to move millions and millions of tonnes of raw materials to plants in the Great Lakes area, both in Canada and in the United States.

The workforce is skilled in the shipbuilding industry, and it's currently enjoying an improvement in the labour climate. Rationalization efforts have occurred over the past ten to fifteen years, with assistance from the government but also conscientious efforts on the parts of the shipbuilders to improve their productivity.

Currently investment and modernization programs are under way, developing high-tech capabilities and rationalizing and again seeking further improvements to productivity. The activity in these yards has increased. Certainly in the Great Lakes area there have been a number of conversions of bulkers to self-unloading vessels. One company has undertaken a major program to reconstruct the forebodies of a number of its self-unloading vessels. And all shipowners, given the age of their fleets, are undertaking major refits, steel repairs and life-extension programs.

• 0925

Compared to international shipping, Canadian shipbuilders face a competitive disadvantage. This is due to the labour practices, the low labour rates in developing nations. An example of this that I'm familiar with is that in China the cost of fabricating steel is about 25% of the cost here in Canada. That's largely due to the difference in labour rates in China.

There is direct subsidization of the industry in many nations. Low-cost financing schemes are available. Tax incentives are offered. The very fact that they enjoy economies of scale gives them a competitive advantage that the Canadian industry doesn't have. Shipyards in Japan turn out ships as if it was an assembly line in the automotive industry in Windsor or Detroit.

One area that is of concern to the industry when it comes to shipbuilding is access to the U.S. market. Canadian yards have a limited opportunity to compete for repair, build and retrofit contracts against U.S. shipyards, while Canadian shipowners are not restricted from having any major work or new construction done in the U.S. Ships can be repaired and constructed in the United States, and imported into Canada, returned to Canada, duty-free.

I believe competition would be enhanced by providing shipbuilders and shipowners fair and equitable access to both these markets.

From the chamber's point of view, clearly this is a complex economic equation here. The primary interest, the principal interest of the chamber and its members, is to ensure that competitive transportation is available to shippers of goods in Canada.

Thank you very much.

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

Now we'll turn to the Canadian Shipowners Association. Mr. Morrison, please.

Mr. Donald N. Morrison (President, Canadian Shipowners Association): Thank you, Madam Chair. We'd like to thank you for the invitation to make a presentation today. You have our slides in front of you, and I will build on those for our discussion.

Shipbuilding is an important industry in Canada and is of enormous interest to Canada's shipowners. We have a proud history of investing in and operating Canadian-built commercial vessels.

[Translation]

Considering that we also have huge investments in the infrastructures of Canada's transportation sector, we believe that Canadian policies regarding shipbuilding must be thoroughly discussed and reviewed. This is the clear message that we wish to convey this morning. Therefore, we appreciate the committee's resolve to pay particular attention to this issue. We support the idea of a detailed review process under Industry Canada.

[English]

The Canadian Shipowners Association represents Canadian-flag commercial ship-operating companies. We have eleven members operating some 90 vessels, almost all of which are Canadian-built. In 1998 the Canadian Shipowners Association member vessels transported some 73 million tonnes of cargo in the Great Lakes, the St. Lawrence waterway, the Canadian and U.S. east coast, and Canada's Arctic.

Perhaps you can turn to the first slide now, entitled “Canada: A Maritime Nation”.

[Translation]

Canada is a maritime nation. We are surrounded by three oceans and we have privileged access to the Great Lakes and to the St. Lawrence Seaway, the world's longest inland waterway. Since our economy is dependent on trade, we expect Canada to maintain its shipping industry at a high level, and shipbuilding is a critical component of that industry.

[English]

As our friends from the Canadian Shipbuilders Association have pointed out in their policy paper, the marine industry directly contributes to some 40,000 jobs and some $2 billion annually to our economy. As a highway for Canadian business and trade, the waterway contribution is much greater. In this world of just-in-time delivery and high-technology growth stocks, we can sometimes overlook the fact that maritime marine transport remains the most economic option for bulk transportation, especially over long distances, and is especially important to Canada.

• 0930

By way of illustration, in the agricultural sector Canada has established an aggressive goal to capture 4% of the world's agriculture and food market, up from 3% today. While much growth is expected to come in value-added processed exports, fully 60% of our $21 billion in agriculture exports today are primary products. Western grain remains one of the key commodities of the Great Lakes-St. Lawrence waterway and will continue to be for years to come. At the port of Hamilton, as an example, fully 80% of the marine traffic is iron ore and coal feeding Canada's steel industry. We, the Canadian shipowners, service these industries. In many smaller St. Lawrence River and Great Lakes communities, the reliance of the local economy on marine transport is equally high.

As we turn to slide two on the issues, I'll ask Captain Lanteigne to take us through this slide.

[Translation]

Mr. Réjean Lanteigne (Vice-President, Operations, Canadian Shipowners Association): Madam Chair, I salute you and the members of the committee.

[English]

On the second slide, we have identified four issues the Canadian shipowners think are at the centre of shipbuilding in this country. The first one is the domestic fleet. As with other segments of Canada's transportation sector, the quality of our infrastructure is vitally important to productivity and competitiveness. Our ships are the key assets of our marine infrastructure.

Renewal of Canada's fleet of commercial carriers is among the most pressing issues facing Canadian shipowners. The average age of our fleet on the Great Lakes-St. Lawrence waterway is 27 years old. In the bulker fleet, which carry mostly iron ore and grain and were referred to earlier by Mr. Johnston, the average is about 29 years old. Over the next few years many of these vessels, or most of these vessels, will require replacement.

Maintaining this existing fleet is costly and cannot go on forever. Shipowners are investing in new vessels, but not here. In fact, as you probably read in the last few weeks, Marine Atlantic, a crown corporation, is currently visiting Europe in search of an additional ferry for their fleet. So we are investing in new vessels and we're not investing here. This is despite an existing 25% duty on the importation of foreign-built ships. The last new cargo ship built in Canada for us was built over 15 years ago.

Surely, in our view, these realities alone are a reason for taking a serious new look at Canada policy framework with respect to shipbuilding. Canada's shippers, from a competitive perspective, should have access to the latest in shipping technology and the efficiencies that go with it.

The second point in the second slide is the role of the federal government. The federal government has a big stake in ensuring a high-quality shipbuilding and ship repair industry. Through the navy, the coast guard and the ferry fleet, the government is the biggest shipowner in the country. From this perspective, the deterioration of Canada's shipbuilding capacity does not serve the public interest.

[Translation]

Shipowners and shipping companies are also affected. Coast guard ships and ferries are important components of our maritime infrastructure. It is important that the groups providing these services have access to the best ships and to state of the art technology.

[English]

Part of the existing shipbuilding policy is a commitment to source government-owned vessels from Canada. The government should have a sharper interest therefore in the competitiveness, productivity, and financial health of Canada's shipyards.

The third point of our concern is ship repair. Much of the focus of this debate so far has been on building ships. It should also be about ship repair and the ship repair industry. The two are very different in many ways. Some of the proposed solutions to shipbuilding challenges, such as export subsidies, for example, do not address the needs of the maintenance and repair sector. Our members, as I mentioned earlier, rely heavily on ongoing maintenance and vessel grading. The government fleet does also. Further review of policies for this industry should give the maintenance and the repair side of the business some equal time. A viable locally based repair industry will continue to be essential to the maintenance of this fleet that exists today.

• 0935

Mr. Donald Morrison: Thank you, Réjean.

I'd like to talk for a moment about productivity. We've heard both Mr. Cairns and Mr. Johnston talk about the capability and capacity of the Canadian shipbuilder, and I would say that the Canadian shipowners underline that. Canada's shipbuilders are as talented as any in the world. Canadian-built vessels have a proud history in Canada's marine trade. Construction of state-of-the-art frigates for the navy attests to the technological expertise of the Canadian industry, as well as the major repairs and refits that are going on in Canadian yards.

So why aren't we doing better? What are the underlying issues? You've heard some of these before, but I'll just underline some of them again.

Global overcapacity is often cited as the root cause. This may be a factor, but the terrific domination of the industry by South Korea, Japan, and China has to lead us to other conclusions. While there may be overcapacity everywhere, clearly we are not all doing equally badly. Simply citing overcapacity as a problem doesn't help us find a solution.

Canada's shipbuilders have demonstrated that subsidies play an important role. A recent study of the north European shipbuilding industry also provides some interesting perspectives. It points to strategic business issues and productivity as key factors in the decline of the European industry and the growth of the Asian industry. Japan's productivity, according to the report, is particularly outstanding. Despite having the highest hourly labour rates of 10 shipbuilding countries, 33% higher than Europe and twice South Korea's labour costs, it has by far the best productivity. If we look at slide three, we'll look at a more comprehensive review.

We think it's appropriate, Madam Chair, that this committee has provided a forum for this discussion under the banner of productivity, innovation and competitiveness. In our view, there just aren't enough answers, and a more thorough review of the issues facing the industry and Canada's policy, or lack of policy, is merited. The issues are not simple. Just pointing to foreign subsidies and overcapacity is not enough. A full examination of the competitiveness of Canadian shipbuilding, its productivity, its financial health, its structure, and its capacity for innovation must be carried out.

In the 1970s the federal government of the day implemented the “angel plan”, a program allowing investors or “angels” to obtain tax advantages by investing in Canadian ship construction. This plan led directly to the construction of many of Canada's ships in operation today and allowed Canada's shipbuilding industry to build critical mass. As we look to the challenges of infrastructure renewal today, a program of this type has some merit. We've attached a brief description of the angel plan to the document provided to the committee.

As a final comment, the Canadian shipowners insist that we need a comprehensive Canadian shipbuilding policy. We've read with interest the testimony of the previous witnesses and attendees at these hearings. I think it's important to note that when the people appeared—and this is not as a criticism, it's to point out some of the difficulties that we have and that I know this committee had. We had involved the Department of Industry, Department of Finance, Export Development Corporation, and they in effect suggested at times that the committee should refer to Foreign Affairs.

When we look from the bottom up for a policy or for an approach that will help guide us as we have to move into this period of ship renewal, infrastructure renewal, if you feel it's difficult from this committee's standpoint, it's extremely difficult for our members when we're looking at when and where and how we're going to invest, how we're going to do our business plans, how we're going to position ourselves strategically in terms of Canadian business, when we don't know what the future is going to hold. When we're asked, as an example, do we support accelerated CCA, do we support getting rid of the 25%, the yes or no answer to those questions doesn't provide us with a policy. We need someone, we need a department, we need a sponsor to look at the Canadian shipbuilding industry.

• 0940

As an example, the marine industry over the past couple of years has faced a couple of major challenges in terms of pilotage and grain. In both those cases the government did see fit to appoint a committee or to appoint individuals to study this on a comprehensive basis. At this time we think the Department of Industry, which maintains Canada's policy and is responsible for the productivity and competitiveness of Canadian business, could be the right sponsor for a review.

Our recommendation is that the department lead a review by meeting with major stakeholders, doing additional research and committing to a better policy framework than we presently have. This review could be performed under the guidance and chairmanship of an independent individual.

Madam Chair, we thank you very much for the opportunity to make our comments this morning.

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

I'm now going to go to questions. Mr. Penson, do you have any questions?

Mr. Charlie Penson (Peace River, Ref.): Yes, thank you, Madam Chair.

Good morning, gentlemen.

I think the group here this morning has introduced an area that is of concern to all of us, and that is that you're not dealing with fair competition on the international stage, and you're not the only sector in the Canadian economy that affects. Agriculture is another one, as you know. Therefore, if government is going to design policy to deal with facing unfair competition and how to deal with that aspect of it, I think it's important to know what's being asked of government.

Mr. Cairns, you summed up a very good presentation by saying who would not want to make that investment? Well, that may well be, but we need to know what that investment is going to be. I think we have to be honest with each other and tell us what is the cost of maintaining your business so you can get into that position you've talked about of becoming competitive and supplying the offshore and the various aspects you've talked about this morning.

That's my first question. What would be the cost? You talked about the need for a credit financing plan. Well, we need to know that.

Mr. Peter Cairns: In your pack I put an example of the Title XI program in the United States for the last seven years. It's essentially that if we were to go into some long-term financing scheme like that, it could be in fact self-financing. I think that piece of paper I gave you demonstrates that. In the last seven years, what with the fees the Americans charge to use the program, they will offset the cost of administration, so we think that recommendation is in fact self-financing.

With regard to lease financing issues, other than that there is an administrative cost to the government that's been estimated at around $16 million perhaps in deferred taxes, we believe in fact there really is little cost to the government because in the long run the government does get the tax money. It's just that the tax money is deferred from the beginning until further down in the program.

So we believe essentially those are relatively self-financing programs.

With regard to a tax credit, if that was considered, that's a harder one to estimate, I believe, by virtue of the fact that you need to have contracts before you know how much tax credit you're going to actually have. That depends really on how much business we are going to get before we could estimate. We believe, given the experience we've seen in Quebec, where they do have a tax credit scheme, where there is work in their shipyards, in fact this is something that can work. I would be loath to give you a dollar figure on the cost to government there, but I don't believe it's extraordinary.

The others are really issues of diplomacy. We wouldn't need any of this stuff if we had an OECD agreement. If there were an OECD agreement, we wouldn't be sitting around this table today because there wouldn't be direct and indirect subsidies in shipbuilding in the world in most of the major nations.

Mr. Charlie Penson: But, Mr. Cairn, agriculture wouldn't need subsidies either if they had an agreement to take care of the subsidy issue.

Mr. Peter Cairns: Exactly.

Mr. Charlie Penson: But that's not the real world out there.

Mr. Peter Cairns: No, it's not the real world, but we were close there. We were actually very close to an agreement. Whether we can get back to being close to an agreement or not remains to be seen, but I was just in the United States last week, and there is a great groundswell in the shipbuilding industry in the United States to in fact push through an agreement. Until something like that happens, we're looking at kind of an interim policy, I guess.

Mr. Charlie Penson: Okay. I'd like to explore the credit aspect of it, the long-term credit. You're telling us it really probably wouldn't be any cost to government, but I gather you'd want government to do the financing over this long period.

• 0945

Mr. Peter Cairns: Yes, that's correct.

Mr. Charlie Penson: We do see, though, that there is risk exposure in those kinds of deals, and we have seen Export Development Corporation, for example, have to write off outstanding loans that have been long overdue—the Canadian Wheat Board, for example.

Mr. Peter Cairns: Yes.

Mr. Charlie Penson: So there is significant risk to some of that as well. You would admit that, wouldn't you?

Mr. Peter Cairns: Yes, there is a risk, but it's a guarantee of the financing. It's not the financing per se we're talking about. All we're talking about is a loan guarantee. And really—

Mr. Charlie Penson: If it's a default, who would pick it up?

Mr. Peter Cairns: It would be a government problem.

Mr. Charlie Penson: Okay.

Mr. Peter Cairns: But the real issue there is that you need to scrub down the program and ensure who you're making the investment in. No one wants to pick up a fly-by-night operator and invest. You really have to have a very solid program.

The Americans, when they revamped their Title XI program, just as an example, virtually eliminated default. It virtually eliminated default by a rigorous scrub-down and a rigorous business approach to the loan and to the people who were applying for it.

Mr. Charlie Penson: Okay. I don't have very much time, so I'd like to get a couple more questions in.

Mr. Morrison, I have two questions for you, as representative of the Canadian Shipowners Association. The first one is the cost to your association of having a 25% tariff. You mentioned that someone is in the process of buying a new ferry outside of Canada in spite of a 25% tariff. When you buy ships, how does that break down? Is there a penalty? Does that 25% tariff enter into the costs to you on that ship, and if so, can you give us an idea?

The second question I have for you is this. You talked about productivity and the need to come more into line, I gather, with Japan and the United States, whom you've really fallen off with—and that's the focus of our study here right now, this productivity issue. Well, a lot of the leading economists are saying the way to address this issue is to lower taxes and cut debt. That's their formula. Pierre Fortin is just the latest one to say that. You recognize we do have a $573 billion debt that takes over $40 billion to service every year in interest payments.

So I'm just wondering, it's sort of a catch-22, isn't it? When you help our industries like agriculture or shipbuilding, it can add to that problem, and yet we're trying to solve the productivity issue.

I'm wondering if you could address those two questions.

Mr. Donald Morrison: The answer to your first question is that the 25% is paid on the purchase price of the vessel. We've recently had a shipowner who invested over $30 million and had to pay close to $10 million worth of duty to bring in the vessel, to be able to operate it in Canada's coasting trade. So it is a direct cost to us.

In terms of productivity, I'm not going to pretend we're the experts on shipbuilding productivity. It would seem to me, though, that when you have the major representatives of Canadian shipowners not knowing what the policy is going to be, what the fiscal policy is going to be or what the financial make-up of any policy or program is going to be—and we're not investing in Canadian shipbuilding perhaps even to the level we could be right now—you're never going to solve a productivity problem, not if you have an industry that is just kind of jerking along and doesn't know what its future is going to be and what strategic planning it can get into. I think the productivity problem is as simple as knowing whether or not there is going to be a business there in the future.

Mr. Charlie Penson: So confidence would be a factor?

Mr. Donald Morrison: That's right.

Mr. Charlie Penson: Okay, those are my questions. Thanks.

The Chair: Mr. Lastewka, please.

Mr. Walt Lastewka (St. Catharines, Lib.): Mr. Morrison and Mr. Cairns, do you have anything along the line of a third-party competitive study showing labour material, financing, and other items on competitiveness around the world?

Mr. Peter Cairns: I have some information on third-party studies, yes.

Mr. Walt Lastewka: Could you forward that to the committee?

Mr. Peter Cairns: Yes.

Mr. Walt Lastewka: Who is the third party?

Mr. Peter Cairns: Drury Ship Consultants. I think you'll find it in rather round terms—not in specific terms, but in global terminology. But it gives you some idea.

• 0950

Mr. Walt Lastewka: Mr. Cairns or Mr. Morrison, previous witnesses talked about the CCA write-off. I asked for examples where the CCA applies as well as leasing, and I was told it was in the truck and rail industry. Do you have any data to forward to the committee on that?

Mr. Peter Cairns: Do you mean on what happens in the truck and rail industry?

Mr. Walt Lastewka: My understanding from previous witnesses is they talked about the fast write-off and that they've had leasing also, so I was looking at the examples. Do you have data showing that the CCA and leasing apply to trucking and rail?

Mr. Peter Cairns: I do not have that data.

Mr. Donald Morrison: We can certainly find the data that the leasing applies on those elements under $25,000, and I would like to make a comment about that.

It seems that within the Department of Industry and the Department of Finance, the feeling is that because it's $25,000 and under, it's all right to allow them to access the leasing provisions. That says you can in effect buy a 100-car unit train at 100 times $25,000 and the leasing provisions would apply, yet for a vessel that might approximate the same cost, it doesn't apply because it's one lump.

I think the leasing provisions have to be looked at in that regard, but it is a fact that for vehicles and implements under $25,000, it can apply.

Mr. Walt Lastewka: Could you forward something to the committee on that? We're trying to get our hands around something where the CCA and leasing apply in the truck or rail industry.

On the tax credit provision you submitted, where there's a refundable tax credit on building of ships, with so much on the first ship and so forth, is that not just a direct subsidy under another name?

Mr. Peter Cairns: It really depends on how you look at it. We don't believe it's a direct subsidy under another name. We put that in there because if you go back to the Mintz report on business and industry on how to better do this, they actually recommended tax credit as the new way of doing business, as opposed to other depreciation methods. Whether the Department of Finance will eventually look at that or not, we don't know.

It really depends on your definition of subsidy and where you sit. Everything you do to help an industry can be called a subsidy in some way or another. Even the Export Development Corporation, or whatever, can be called a subsidy.

Perhaps one of the things we really need to do here is define what we're really talking about. It might take this committee and me four years to do that, but the long and short of it is that it could be called a subsidy. We would tend to take the other point of view, but it's a moot point, as they say in law.

Mr. Walt Lastewka: Mr. Johnston, are you buying new ships?

Mr. Raymond Johnston: Not personally.

Mr. Walt Lastewka: But is your association buying ships?

Mr. Raymond Johnston: No, it's not now.

Mr. Walt Lastewka: It would seem to me that some of the comments made about Industry Canada and trying to get data we all agree on.... Mr. Cairns, you mentioned it might take four years to define it. That's too long.

We're almost at the point where we need a good third-party study with—I just wrote down some names here—owners, builders, labour, Finance, and Industry Canada, with a third party being part of that. Let's put all the cards on the table, because we get data one week from one organization and then it's contradicted the next week. We seem to have difficulty in the shipbuilding, shipowning, marine industry getting data we all agree on.

Would you agree with that?

Mr. Peter Cairns: Absolutely.

Mr. Walt Lastewka: Is that the problem?

Mr. Peter Cairns: That's one of the problems. We would contend—and this sounds as if we're not being very kind to government—that in actual fact we haven't really looked at the whole thing, as you say. We tend to look at it in parcels. In what we've given you today, we've tried to show that we are in fact a very small piece of the puzzle. It doesn't really make much difference to us whether the Koreans and Japanese own 75% or 80% of the market. We're looking for our 0.5% to 1% share.

• 0955

We need to compete in the areas that we know how to compete in, and build the kinds of vessels that we know how to build. We do not want to compete with the Japanese to build 75,000-tonne container ships. We want to compete with other folks to build ferries, tugs, small vessels of all kinds, barges and what have you. That's where we can compete.

So it's to get this balance. I agree with you that we need to get better data and more reliable data across the board.

Mr. Walt Lastewka: I think you've come a long way, because at one time you mentioned that we don't have any shipbuilding policy, but at least today you have given credit to the four or five items that we do have—or maybe you were misquoted.

Mr. Peter Cairns: We've always given credit to it, sir, but perhaps not for long enough.

Mr. Walt Lastewka: The items I have a concern with are the items that were affected by NAFTA. To go back now and try to reclaim, do you have any suggestions on how we should do that?

I'm glad Mr. Jones has walked in.

Mr. Jim Jones (Markham, PC): I was listening to you.

Mr. Walt Lastewka: We were burning his ears.

Mr. Peter Cairns: I do not have enough background. I've heard a lot of stories about what happened behind the scenes in NAFTA, but I don't know whether any of them are true.

Mr. Walt Lastewka: I want to talk about how we go forward.

Mr. Peter Cairns: How do we go forward? I understand there are provisions for things to be reviewed from time to time, and it's a question of when that timing is correct. I've actually asked people in International Trade that question, and they have indicated that shortly after the NAFTA agreement came into force the United States reviewed its policy and said it could not do anything with the Jones Act. As a result, we have to wait for some time before we can reopen a negotiation. I would think that sometime must be coming soon, because I think we're somewhere between four and five years after the initial NAFTA agreement.

I think there is an opportunity to reopen things and I think the same thing goes for the Jones Act. For instance, what's the problem with a North American Jones Act? What if our market was open to them and their market was open to us in the shipbuilding side of the house? That's what I'm talking about here. In other words, I've actually talked to people in the United States who don't think that's a bad idea. The Jones Act restrictions on how much repair you can do to your ship before you in fact violate your Jones Act status if you're American are very tight. Maybe we could push in a small way to open those up in the repair market.

I think taking on the Jones Act head-on is very difficult. How do we reopen NAFTA? I'm not sure, sir, to be very candid with you. There must be logical times within the act in terms of when it can reviewed, and I think those must be coming up soon.

The Chair: Last question, Mr. Lastewka, please.

Mr. Walt Lastewka: You bring up a good point on the major work done. Before you know it, it's classified as a new ship and we lose in Canada.

That'll be it for now, Madam Chair. I'll come back later.

The Chair: Thank you.

Mr. Dubé.

[Translation]

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): Before beginning, I want to point out, in reply to a question from Mr. Lastewka that, in their document and more specifically in the part dealing with the tax credit, we must not forget the word “refundable”.

I am glad to see you all here this morning. We have officials from the Chamber of Maritime Commerce, the Canadian Shipowners Association and the Shipbuilding Association of Canada. Behind you are representatives of the union coalition who came to testify last week. We also heard witnesses from the Department of Industry.

As Mr. Morrison rightly pointed out, you are involved in shipping, along with a number of departments. We did not think about mentioning it until now, but the Department of Foreign Affairs and the Department of International Trade are also involved, because we are dealing with the competitive market on the international scene.

• 1000

Following the WTO flop, we do not know what will happen. It will be many years before we talk again about a world plan for shipbuilding. European countries realize that. Yet, they are members of the OECD and they had signed the agreement to put an end to subsidies. However, since the United States refused to sign that treaty, these countries continued to subsidize their industry. For example, in a recent case involving the conversion of a ship, the British provided subsidies totalling 4.5% and were thus awarded the contract over Korea and Japan.

The gap may not be so wide, because since the Asian financial crisis these governments are no longer in as good a position to continue the price war—because this is what it is—the subsidy war and also the tax war, since crown corporations that own shipyards do not pay taxes.

I will conclude my preamble by mentioning the interest shown and the particular efforts displayed by Mr. Lastewka. I admire his rigour and the quality of his questions. He gets the information and he reviews each point. I have a great deal of respect for him. Last year, I visited a shipyard in his riding and he made a point of noting all these issues with others. He says that there is currently a shipbuilding policy. He repeated that many times in the House. The association claims that there are indeed four issues, including the maintaining of the 25% tariff.

Following a comment made by Mr. Penson from the Reform Party, a witness from the Department of Industry said that this activity was declining and that it would be better to let it go, because it was not competitive. That person was somewhat in disagreement with the assistant deputy minister of the Department of Industry, regarding the assistance that continues to be provided to that declining sector. People reacted by saying: “No, no, we are not helping that industry in a particular way. We do it in the same fashion as for all the other ones”. But in your case, you are asking for specific things.

I will put my questions one after the other. In 1993, the Liberals pledged to hold a summit. Do you think it would be a good thing to hold such a summit with all the departments, provincial governments, unions and stakeholders involved?

Second, in the meantime, we must rely on temporary solutions. A promise was made in 1993. We are now in 1999 and the year 2000 is fast approaching. We may have to wait another five years. Would it not be appropriate to propose to the Department of Finance, through the Standing Committee on Industry—the Standing Committee on Finance did it—transitional measures for the industry?

I am well aware of what the shipbuilding association is asking for, and the same goes for the unions. I want to ask you if you support, as a major transitional measure, what is proposed by the Shipbuilding Association of Canada, which is supported by the union coalition, by all the provincial premiers in Canada, by the Canadian Chamber of Commerce, by many Canadian organizations and by the 160,000 people who sent a postcard to Mr. Chrétien, asking him to take action. Do you support that proposal?

[English]

The Chair: Who wants to start? Mr. Morrison.

Mr. Donald Morrison: The answer to your first question was yes, but I can't remember what the question was.

[Translation]

What was your first question?

Mr. Antoine Dubé: It was about holding a summit.

Mr. Donald Morrison: I believe this continues to be an idea which, in our opinion, makes sense.

Second, we would love to have transitional measures, but we would be more comfortable with the measures described in your bill. The only thing that we do not accept are the subsidies. We have a problem with direct subsidies.

• 1005

As for credits, taxation and so on, we can live with those. We can put pressure to get these things, but it is the subsidies that are a problem right now.

[English]

The Chair: You've asked everybody a question.

[Translation]

Mr. Antoine Dubé: I just want to say that the three measures that I propose in Bill C-293 are found in parts A, B and C of that document.

Mr. Donald Morrison: Yes, but this document here refers to subsidies, right?

Mr. Antoine Dubé: Yes, it does at the end.

Mr. Donald Morrison: At the end.

Mr. Antoine Dubé: I only have the measures found in parts A, B and C.

Mr. Donald Morrison: We can live with your proposal, because it does not include subsidies.

Mr. Antoine Dubé: What about you?

[English]

The Chair: Mr. Cairns or Mr. Johnston?

Mr. Peter Cairns: In response to your questions, in our joint document that we put together with the unions, we actually asked for a summit, for want of a better word. We asked for a meeting with government and all the stakeholders to discuss what the art of the possible is, and to see whether or not we can in fact solve this problem in a way that's acceptable to all parties. We think the only way we can do that is to sit everybody down around the table, as Mr. Lastewka suggested, and get the data out, get the answers on the table and talk about them. We have not been able to get into a really good dialogue in these areas until now. We need to sit down with the right people in order to talk this issue out and work on a program. I think this can be done at a very minimal cost to government.

About transitory measures, I guess the question is how long that would take. If we're going to take four or five years to sort out the problem, then we would ask for transitory measures. But if someone said that in February of next year we're going to sit down and start sorting this problem out, maybe we will not need transitory measures. It seems to me the problem we're facing right at the moment is that we don't want to lose the industry while we're solving the problem, and it is somewhat critical at the moment.

Mr. Lanteigne mentioned the repair industry, and he made a very strong point. We have spent a lot of time talking about shipbuilding. The reason we've done so is that shipbuilding gives us the skills to attract the bright, young people into the industry so that there is a good strong ship repair industry also. That is a real concern to us. Why would a young engineer today want to join the shipbuilding industry given the sorts of things that everybody hears about the decline of this industry, if there is no building and there is no real work? We need to solve that problem too, and that's why building is important to us. It brings the bright engineering skills into the industry.

Mr. Raymond Johnston: Certainly I think the concept of a summit would be welcome. Clearly there is need for greater information and clarity about the issues, such as getting some of the concrete statistics, the facts, documented and understood by all parties. Perhaps a summit, as a framework, would be able to accomplish that.

In terms of a policy, transitory or otherwise, I suppose to some extent we have a transitory policy. We've had one for perhaps fifteen years now in the current state that it exists.

Other measures that could be helpful to the industry have to be explored. On the NAFTA point, it's a joint effort there to give Canadian shipbuilders a broader market. I think that's one for which you can begin the process of sitting down with the Government of the United States. Certainly some of the efforts have to come from industry. There's an interest in the American industry and in the Canadian industry to open up not just shipping but shipbuilding, in order to drive more competition into that industry. There's a feeling in the United States that the Jones Act limits competition and increases transportation costs.

Look at the United States shipbuilding industry on the Great Lakes. It's virtually non-existent. It is very difficult right now to build a ship in the United States, if not impossible. Their industry has simply vanished over the past fifteen years or so. Thousand-foot, 60,000-tonne ships were built in the 1980s. I venture to say you could not build one today in the United States. There is probably only one yard that's physically capable of doing it, but it does not have the manpower or the skill set to undertake such a program.

• 1010

As Mr. Morrison and Mr. Cairns pointed out, there will be a need for replacement of the merchant fleet in Canada, particularly on the Great Lakes. It's coming now in the form of a small wave of shipowners doing what they can to extend the life of these ships, to modernize them. But the economics do not prevail. They are not attractive enough to actually construct a brand new ship. The prices are too high, so the market can't sustain it.

It's really a question of the market. Is the market there to sustain new building? These are issues that I don't have the answers for while sitting here today, but the Canadian shipbuilding industry does play a vital role in terms of being able to keep this fleet operational and supporting commerce in North America. Personally, it would be a shame to see it go the way of the American yards. I think certain policy measures should be put in place. Whether or not they're transitory, until we really understand all of the elements, I think they will be necessary.

The Chair: Thank you, Mr. Dubé.

Members should know that the bells are ringing. There is a vote, and it's a thirty-minute bell. We have another committee scheduled in here at 11 a.m., so we're going to run into some severe difficulties.

I'm going to ask Mr. Cannis to be brief, and then we'll hear from Mr. Jones. We'll then have to leave for the vote, and then return.

Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Madam Chair. I will be very brief, but first let me welcome the presenters.

Because of time, I'm just going to go to one question. You spoke about Marine Atlantic looking to Europe. My question is why? Prior to that, you said the EU would go to the WTO with respect to subsidies. Why is Marine Atlantic looking to Europe? Is it technology? Is it subsidies? If it's subsidies, then I don't understand why the Europeans would be going to the WTO to contest unfair practices by other nations. If it's technology, then maybe we can look to upgrade ourselves.

My concern here arises over what was said in the statement by the Chamber of Maritime Commerce. The chamber says “Competition would be enhanced by providing shipbuilders/shipowners fair and equitable access to both markets.” Define “fair and equitable access”. You mentioned, Mr. Cairns, certain programs that are already there, as you outlined in your presentation. Do you mean that we need to enhance these programs?

The Chair: I'm going to have to suspend the meeting now. We've been asked to head over to the House for the vote now. We'll resume after the vote. I apologize to the witnesses, but we will be back.

• 1013

• 1130

The Chair: I am going to reconvene the meeting. I'd like to apologize to our witnesses for the substantial delay we've now had, and also to apologize for the brevity of what we have left in this meeting.

We're going to continue with Mr. Cannis, who had asked your question. We've given you plenty of time to think of the answer. Does anyone remember what the question was? Do you want to refresh their memory, Mr. Cannis?

Mr. John Cannis: Thank you, Madam Chair. It's really simple. I know there was a concern with respect to the EU going before the WTO, and I think the concern had to do with unfair subsidies. My concern was, if indeed there is a proposal to look at Marine Atlantic looking at a purchase from Europe, is it because of subsidies or is it because of technology? If it is because of subsidies, then it doesn't seem they're playing a fair game here.

Mr. Peter Cairns: I don't believe it's because of subsidies, sir. I think there are several reasons for Marine Atlantic doing that. The first is that there is an issue of speed or haste. There was considerable concern last year that there wasn't enough capacity to carry the folks who needed to come to and from Newfoundland. So they require a ferry quickly.

The second issue, I think, is one of cost. I have to be very careful; I can't really speak for Marine Atlantic, but I believe they've looked at it from the point of view of haste and of cost, and they're looking for a used ferry in Europe, where there is some excess capacity of used ferries at the moment.

Our point as the Shipbuilding Association would be that we would like to see that haste looked after perhaps by leasing a ferry, and then a good solid look at building a ferry for Marine Atlantic as soon as possible. That would be our preferred solution. But we understand what they're doing, and I think that's the reason they're doing it.

The Chair: Thank you, Mr. Cannis.

Mr. Jones, please.

Mr. Jim Jones: Yes, thanks, Madam Chair.

Just a quick point on that ferry issue—if that was in the U.S. they would have to buy it in the U.S., right?

Mr. Peter Cairns: Absolutely. I would also add that this isn't the first time this has happened. The same thing happened with the Lucy Maud Montgomery, replacement of the ferry from Prince Edward Island to the Magdalen Islands. It's happened with more regularity than we would like it to happen.

Mr. Jim Jones: The second point I have is that I was under the understanding that the U.S. shipbuilding industry does very well. When I listened to Mr. Johnston, I got the impression that the shipbuilding industry in the U.S. is in disarray. My understanding is that the U.S. shipbuilding industry is an $8-billion or $10-billion industry—in U.S. dollars—and our industry in this country is about $600 million in Canadian dollars. Can you elaborate on what you were talking about, and then I would like to have your opinion too about the U.S. industry.

Mr. Raymond Johnston: If I wasn't specific, I apologize. I was really referring to the shipyards in the Great Lakes, and their shipbuilding capacity. There's been a substantial winding down and rationalization of that sector of the U.S. shipbuilding industry. I would agree with you that outside, in the gulf particularly, the industry is in fact quite vibrant and quite strong. The particular concern we have within the waterway is the more limited capabilities of the shipyards bordering the Great Lakes states.

Mr. Peter Cairns: And I would support that. The industry is quite strong in the United States except in the Great Lakes.

Mr. Jim Jones: Can you then tell me...? I was listening to this on the radio when I got corrected by Mr. Lastewka that I wasn't here, but I heard a question that said the U.S. wants to take shipbuilding to the OECD or the WTO. Why would they want to do that?

• 1135

Mr. Peter Cairns: It's not clear to me whether the U.S. wishes to take shipbuilding. I know the European Union wishes to take the issue of Korean subsidies and the misuse of subsidies by the Koreans to the WTO. I do not understand that the United States at this moment wishes to take anything to the WTO. I do know the United States is somewhat split. There are quite a number of folks who in fact want Mr. Clinton to sign off the OECD agreement and there are other folks who do not, and that is quite a spirited battle, which is yet to be resolved.

Mr. Jim Jones: When you say “folks”, who are you talking about—politicians or...?

Mr. Peter Cairns: Within the shipbuilding industry itself there is a split. There are two major shipbuilding associations in the United States; one is the American Shipbuilding Association, the other is called the Shipbuilders Council of America. The American Shipbuilding Association represents six companies—they call it the “big six”, and with mergers and everything it has now become known as the “big three”. They are against the OECD agreement for their own reasons. They essentially build government ships, and I believe part of the reason is that it really doesn't concern us.

The remainder of the shipbuilding industry, which numbers some 55,000 people and is governed under the organization the Shipbuilders Council of America, is in favour of ratification of the OECD agreement, in favour of elimination of subsidies, because in fact they are the folks who compete on the international market every day of their lives.

Mr. Jim Jones: How competitive is the Canadian shipbuilding industry in comparison with other nations within the categories of ships that the Canadian shipbuilding industry is capable of building, minus subsidies? Forget about the subsidies. How competitive are you if you went straight up?

Mr. Peter Cairns: It's our belief that we would in fact survive and that we could be competitive in the areas in which we know how to build and in high-technology areas. If you look at what has just happened in Davie, for instance, as a matter of interest, with the refit of the oil rig there, the Spirit of Columbus, now known as Petrobras 36, the capacity of that oil rig was increased from 100,000 barrels per day to 180,000 barrels per day. It's a deep-water rig. The Brazilians themselves have said there are few companies in the world who could have done that work.

So I think in fact from a technology point of view, from a capability point of view, we would be competitive. The real question is, if we could eliminate all this, would we sink or swim? We would like to find out, to be very frank with you.

Mr. Jim Jones: The other question I have is this. I know a little bit about the Saint John yard, and if it weren't for the other countries' subsidies right now, have you guys gone through and done an estimate of the types of orders you might have won?

Mr. Peter Cairns: As the president of the Shipbuilding Association I have tried to do that, but as you are well aware, we have companies within the association, the Irving Group being one, Vancouver being another, that are privately owned companies. They tend, to be very frank, not to really wish to promulgate information in some areas about profit-loss and what they win and what they don't win. Most private companies are like that, whether they're in the electronics industry or the shipbuilding industry, or whatever. So the information has been hard to get. But I understand they have bid on a lot of contracts. They've been very close. I do know with other publicly traded companies, they've been very close and they've just fallen somewhat short.

The Chair: Last question, Mr. Jones.

Mr. Jim Jones: Along the same lines, if you analyse the orders—and I guess nobody will share the data, or they should be sharing the data. Now we go back to the criteria you want as a level playing field, because I understand there are about 2,700 boats in the backlog worldwide. How many orders, how many ships might we be building right now if we had those criteria for a level playing field?

Mr. Peter Cairns: Right now we're building 10 ships in Canada. I gave you that example in my brief of 26 offshore, 4 we can't build, and that leaves 12. I believe if we could get those extra 12 orders per year, in other words if we could build 20 to 25 ships a year—not necessarily in a year, but on a regular basis—we would have a thriving industry.

Mr. Jim Jones: Thank you.

The Chair: Mr. Lastewka.

• 1140

Mr. Walt Lastewka: I was heading—and I know we're pressed for time—in the same way Mr. Jones is. Your answer, Mr. Cairns, is part of the problem. When we start to want to get information on competitiveness, it has to be shared information.

I mean, if the Irving Group and other people don't want to share information, we're a non-starter, would you not agree? That's a problem; we have to put the facts on the table. Saying we just missed is not good enough.

Mr. Peter Cairns: I agree, sir, that we need to put the facts on the table and I agree wholeheartedly with what you're saying. I do believe if there was a strong move to sit down and talk about this industry, these people would put the facts on the table.

I just do not believe that private companies tend to want to put facts on the table if they're just to be used in any number of ways, either pro or against them. I do believe that in an honest forum where we really wish to discuss the issues and really wish to solve the issues, these folks will put all the facts on the table.

The Chair: Thank you.

Mr. Gordon Earle (Halifax West, NDP): I have a point of order, Madam Chair.

The Chair: Yes.

Mr. Gordon Earle: I'd just like to first of all apologize for being late at the meeting. I just found out about the meeting, and I'm substituting for the normal member who would be on this committee.

I would appreciate the opportunity of asking one question before you finalize this.

The Chair: I apologize, but regrettably, due to the shenanigans that are going on in the House, we have to adjourn now.

I want to apologize to the witnesses for the delay that's taken place, and maybe in the future we would welcome you back.

Mr. Gordon Earle: Two minutes.

The Chair: I apologize, but that's not possible.

The meeting is now adjourned.