INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, April 6, 2000

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[English]

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

Pursuant to the order of reference of the House dated February 29, 2000, main estimates for the fiscal year ending March 31, 2001—votes under industry; and the performance report—Industry Canada, for the period ending March 31, 1999.

Minister Manley, we'd love to hear from you.

Hon. John Manley (Minister of Industry): Thank you very much, Madam Chair, and good afternoon to all of you. To the few new members who are around the table since my previous appearances, welcome on board.

With me at the moment is our corporate comptroller from Industry Canada, Mary Zamparo. It is anticipated that the assistant deputy minister for industry and science policy, Andreï Sulzenko, will be here today. As you can see, as the department gets more complex, the book gets thicker. Hopefully among us we'll be able to deal with any issues you want to raise in the context of the estimates.

I want to begin by thanking the committee for the work you've done over the past year. In the months ahead, I will welcome your assistance in dealing with several items that are critical to improving Canada's long-term productivity. These include strengthening Canada's capacity for innovation, investing in knowledge, fostering an entrepreneurial business climate, and making Canada the most connected nation in the world.

One specific initiative that will be coming to your attention, I think in the fairly near future, is amendments to the Canada Business Corporations Act, Bill S-19, which is presently in the Senate at second reading.

[Translation]

Everyday, in thousands of businesses across the country, Canadians are coming up with ideas, making the decisions and taking the risks that will make them and this country prosperous.

Knowledge is key. That is why I am extremely proud of the success we've had in Connecting Canadians. Three years ago, the Government of Canada promised to make this country the most connected in the world. Today, we are number one among the G-7 nations in the availability of home computers, cable, and telephone services.

[English]

Canadians currently pay the lowest rates in the world for access to the Internet. We were the first country in the world to connect all of our schools and public libraries to the net. By this time next year, our community access program will have up to 10,000 rural and urban Internet access sites where Canadians can log on. I think this is good for business and it's good for the economy, but it's also good for individual Canadians.

By the end of this year, I intend to have a Smart Communities demonstration project in every province, as well as one in the north and one in an aboriginal community. Communities will be able to harness the power of the Internet for what they need, whether it's a better-run health care service, education, distance learning, job training, or business opportunities for its people.

In the industry department, at Industry Canada, we're also making sure that our services are leading edge, with electronic networks for some transactions and more and more services available on-line. It's all part of a package my department is working on to help Canada improve growth, productivity, and income. With our partners and stakeholders, we will continue to focus our attention on connectedness, on innovation, on marketplace rules, on trade and investment.

[Translation]

In the months ahead, we'll be doing more to ensure that innovative ideas find their way into new products and services and that Canadians have access to all of them. That is why we've increased funding for the Canada Foundation for Innovation by an other 900 million dollars in budget 2000. That's more money for building projects at Canadian universities, colleges, hospitals and other non-profit organizations.

We are also creating 2 000 Canada Research Chairs that will attract world class researchers to Canadian universities, and this will create the kind of environment that spawns excellence.

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[English]

As these innovations get implemented, we're making sure that the marketplace as well is fair, efficient, and competitive by providing regulations that serve both businesses and consumers. We've introduced amendments to the Canada Business Corporations Act and the Canada Cooperatives Act in the Senate. These are amendments that this committee will be studying.

Bill S-19 is going to make it easier for shareholders to make proposals and participate in the decisions made by their companies. It will make us more competitive, and it's going to lower costs for businesses by eliminating duplication and by harmonizing the acts with provincial laws.

We're also taking steps to improve some of the industries that feed our economy now. Tourism is an example. People around the world still may not know much about Canada, but increasingly they're finding out. Last year, tourism injected $50 billion and created more than half a million jobs in the Canadian economy. We're going to help that to increase. We've been building partnerships with the private sector, seeking to increase our share of the world tourism market by 1% this year. We're also in the process of making the Canadian Tourism Commission a crown corporation in order to give the commission the tools it needs to take advantage of new opportunities in the marketplace.

[Translation]

There is no question that the global marketplace is key to Canada's economic future. We rely on trade for jobs and growth more than any other industrialized country. Two out of every five jobs created in Canada since 1993 are export-based. That is why we are working with business to increase Canada's share of global trade. We've created the International Business Development Strategy to help Canadian exporters and potential exporters get the information and services they need to help them succeed in international markets.

[English]

The steps we've taken to help position Canada in the new economy are beginning to pay off, but there's certainly more work to be done. I think we're still too slow in turning Canadian ideas into business ventures. It's still too difficult for entrepreneurs to get financing here, as compared to the experience they may have in the United States, so we're taking steps to help businesses attract the investment, both Canadian and foreign, that they need in order to grow. The cuts in corporate taxes and changes to stock options announced in the budget are a start toward that end. We're also working to attract foreign investment with Investment Partnerships Canada, a joint project with the Department of Foreign Affairs and International Trade.

What I've outlined so far are government initiatives, but as we all know, Canadians also expect action from their members of Parliament. At this point, I want to make a comment on private members' initiatives that have an impact on Industry Canada. I'm sure you agree with me that this committee has gained what you might say is a certain expertise on this subject, particularly when it comes to the Competition Act.

You've been asked by Parliament to study Bill C-201, formerly Bill C-235. Important amendments were made by this committee to Roger Gallaway's Bill C-276 on negative option marketing. These are private members' bills that have made it onto the order of precedence. There are others that were introduced, but they have not yet had the luck of the draw, including Dan McTeague's bills, C-402 and C-472; Marlene Jennings' C-471; and Karen Redman's Bill C-438, which is related to the subject matter of her earlier bill, C-229. On that note, I anticipate receiving your report in the very near future. Without getting into the intricacies of these bills, combined, they do represent some wide-ranging modifications to the Competition Act.

What I can undertake to the committee is this. First, I welcome the study of these or other bills that the committee will do, but I can also say that where the initiatives are sound public policy in my view, what I propose to do is to give them my support and to recommend to the government that we support them. I'm counting on your help as we move forward in the months ahead.

Now I'd like to devote the rest of the time to any questions you may have.

The Chair: Thank you very much, Minister.

We'll start with Mr. Penson.

Mr. Charlie Penson (Peace River, Canadian Alliance): Thank you, Madam Chair. I'd like to welcome the minister to the committee, along with his officials.

Mr. Manley, you talked about the private members' bills that were introduced and the studies that are happening in regard to those. As you know, the committee undertook another important study, that being the one on productivity, which we've been working on since September.

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As a result of that study, we heard from a lot of Canadians who expressed some alarm at what's happening with the growing productivity gap with the United States. I know you've made some comments to that same end in the past, but it seems to me there's a growing chorus that is getting pretty loud. It's not just saying we have to lower taxes and pay down debt in order to meet the United States, but that we have actually to lower levels of taxation so we can regain that productivity. Government claims to have done that—and you've made some reference to budget 2000—but I noticed that at the BCNI's meeting just recently, they didn't seem to be that impressed. In fact, they talked about a poll of 55 of their CEOs, two out of five of whom believe their company head offices would have to move out of Canada if the business environment does not improve. Given that the United States is our major trading partner, I think those are pretty serious allegations they're making.

Further to that, the BCNI statement said:

...in the latest federal budget...the timid and grudging tax breaks for higher income earners could be seen as more insult than enticement to many of the high achievers...that Canada needs to fuel its growth in the knowledge economy.

So I'll get to my questions, Mr. Minister. How do you react, and what are you going to do about these serious allegations that are being made by a major business organization? If you were the finance minister and were able to write the budget for next year, what would you propose to do differently from what we have done now in order to address these concerns?

Mr. John Manley: First of all, I did have a chance to address the BCNI yesterday, and I must say that the presentation that preceded mine by the head of the BCNI, Mr. d'Aquino, was significantly different in tone and content from the published report. In fact, he spent more than half of his presentation talking in very positive terms about what the government had accomplished in eliminating the deficit and in making headway on reducing taxes. I think he also recited a lot of very positive statistics demonstrating that Canada has led other major industrialized nations in job creation and economic growth over the last number of years.

I think it became clear by the end of his presentation that the BCNI did want to correct any misapprehensions that the public might have had from their report that they thought everything was gloomy. In fact, it became quite clear that there are a lot of very positive elements to the story.

I'm not sure how much weight to put in the survey of some of their members. I think if you were to ask a business person whether it's possible that their business may move to the United States in the next decade, they'd say anything's possible in business today.

I think it's undeniable that competitive taxation rates are an important ingredient in contributing to growth in an economy, especially as the world economy becomes increasingly globalized. But as I pointed out to the BCNI yesterday, some of the countries that their own report cited as being countries in which growth over the last decade may have exceeded that of Canada—or over the last part of the decade—are countries that have a larger taxation burden than Canada has. It is therefore simplistic to suggest that it's strictly taxation that contributes to that.

Some of the commentary suggested that a fixed exchange rate might help. Others suggested that the degree of openness of the NAFTA market, which is inferior to that of the European Union, might contribute to more rapid growth rates in some European economies. And all of the commentators, I think, pointed to the importance of investing in education, training, learning, and research and development. Basically, they see the innovation agenda as being an important ingredient of success in a knowledge-based economy.

So in terms of the way I would take it, Mr. Penson, as far as the large business community is concerned, we're on the right track, but they'd sure like it to go a lot faster. I can understand that, and I guess that no matter who you talk to in Canada who has a particular direction in which they'd like us to go, they'd probably like us to go faster too.

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Mr. Charlie Penson: Yes, I agree with that, but my understanding is that there are a lot of others who have been making comments along the same lines. Pierre Fortin, for example, has suggested that our growing productivity gap with the United States needs to be addressed in a very simple manner. His formula is to pay down debt and reduce taxes. The Canadian Chamber of Commerce and the Conference Board of Canada have also sounded alarm bells about what's happening.

I don't think it's any sort of mystery that our standard of living has fallen relative to that of the United States. Even more than that, as a rate, we've fallen on a per capita income basis relative to France, the Netherlands, Norway, and Ireland. You know, we're falling behind here. It just seems to me that as an answer to this, the budget is not adequate, and we have to move faster. I wonder if you wouldn't agree that, for example, corporate tax rates and personal income tax rates have to come down faster in order to get that competitive edge back that we once enjoyed.

Mr. John Manley: Yes, but again, as I pointed out to the BCNI yesterday, when the principal preoccupation of that organization was deficits, when did we ever fail to exceed the deficit targets that we set?

With respect to corporate tax rates, the Minister of Finance has said there is a floor, not a ceiling. I would therefore ask the BCNI why it would not believe that we can't exceed those targets as we have the economic performance. One thing we've tried very hard to do is to be very prudent. We're not going back into deficit.

Some jurisdictions in Canada, including one of the ones that I pay tax in, think you should cut taxes even if you have to keep borrowing money from the Japanese to do it, or whoever it is that Ontario is borrowing its money from these days. Well, we don't subscribe to that philosophy. We think it's more important to ensure that we maintain a clean balance sheet and pay down debt rather than incurring additional debt, even if that means going more slowly on the tax reduction side.

Mr. Charlie Penson: Well, I guess it depends on what target levels are set, in terms of whether you can meet them or not.

I want to ask about the Small Business Loans Act aspect, Mr. Minister. We've seen quite an escalation in the dollars that have had to be paid out to pay off bad loans in the small business loans area. From $32 million in 1993-94, it has gone to hundreds of millions of dollars. Is there a current audit that would evaluate whether or not the conditions are being met properly, or whether the proper conditions are being set by government for financial institutions to administer this loans act? My understanding is that about 18% of some of the chartered banks' small business loans are coming from the Small Business Loans Act. In fact, isn't the Government of Canada really just picking up the high-risk loans in that area, while letting the banks have the ones that tend to be more lucrative?

Mr. John Manley: With respect to your first question, every time the banks submit a claim for payment, there is a review to ensure that they did exercise due diligence in making the loan in the first place.

With respect to what is essentially a question of incrementality, there's no doubt that some of the loans wouldn't be made without the government guarantee. That's really the purpose for the program. In fact, we've tested it and looked for incrementality. When we had a study done back in 1996 by Professor Riding from Carleton University, his estimate was that 54% of the lending under the program was incremental. He found that an additional 32% was incremental in the sense that the borrowers believed they got loans on better terms. It could well be that some of those people would not have gotten loans, but I'd suggest to you that this is why we have the program. It's to ensure that there's more lending than would otherwise be the case. Otherwise, there's no point in having a program.

Mr. Charlie Penson: My second question there was about any audits that had been done. I would just remind you that the Auditor General, in 1994 and 1997, warned that Industry Canada was not assessing whether the lenders had exercised due care when making those loans, and that many loan files did not contain information necessary to perform a thorough credit risk analysis.

So my question still stands: have there been any internal audits that have sought to correct this program, and can you make those public if there are?

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Mr. John Manley: In terms of what we've done, first of all, we've implemented the recommendations that the Auditor General made. As you know, there have been a couple of revisions to this program that have required statutory amendments, including an early one in 1995, when we fundamentally changed the program. Many of the bad experiences that are now coming to light really arose in that period between early 1993 to 1995, when the parameters of the program were opened up, frankly. It was at that time when it seemed the economy was still in recession. In retrospect, I think you could say it was on its way out, but the number of loans ramped up rapidly. They were easier to acquire. We closed that down in 1995. Nevertheless, because loans don't go bad for a few years, those loans are really the ones the Auditor General commented on. In the last amendments that we made in 1998, though, we also took into account the AG's recommendations in the changes that we made to the program at that time.

Mr. Charlie Penson: We have had two years since that time. That's my question. Has anything been done in that two-year period to assess it?

Mr. John Manley: The problem is that you have a lag in this program. We won't get loans that were made in these last two years going bad until probably another year or two from now.

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

Mr. Lastewka, please.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chairman, and thank you, Minister.

I'd like to reflect a bit on the privacy bill that we had put forward. Of course, it started out as Bill C-54, then it became Bill C-6 and was amended and was delayed, and then we had an amendment from the Senate. My concern is about being able to implement the privacy bill, including the educational portion of it. It was very clear to us as a committee that the privacy commissioner needed to do a lot in terms of informing the Canadian public of what privacy is all about.

Mr. John Manley: First of all, I agree entirely with that. As you know, the bill finally passed all legislative changes just Tuesday night, and it should be receiving royal assent in the very near future. We will then establish the effective date by Order in Council.

Through the various stakeholders who have been concerned with this legislation, we've certainly made it clear that we fully expect that we'll continue to target the same implementation date as had been foreseen. In other words, for most sectors under federal regulatory authority, the date is January 1, 2001. We've been working with them and the privacy commissioner has been working with them in order to encourage them to be ready.

I think we've also satisfied the privacy commissioner that he has the resources that are necessary in order not only to promote understanding of the provisions of the act, but also to enforce it once it's implemented.

I might point out that I happened to bring along—I've been carrying it around with me, although it's getting a little tattered—a recent edition of Business Week, from March 20. It's the issue that has “Privacy on the Net: What should be done” highlighted as the cover story. They didn't seem to know about Bill C-6 or C-54, but Business Week came to a conclusion, referring to the United States. Business Week recommends this to the U.S.:

Instead of a conflicting patchwork of state rules, the federal government should adopt clear privacy standards in the spirit of Fair Information Practices—a philosophical framework for privacy protection that has been adopted worldwide over the past 25 years.

—and members who worked on this will know it is essentially the same as the CSA standard that we use—

The broad principles are essential:

—Companies conducting business online should be required by law to disclose clearly how they collect and use information.

—Consumers must be given control of how their data are used.

—Web surfers should also have the ability to inspect that data and to correct any errors they discover.

And finally, this is an important one:

—And when companies break the rules, the government must have power to impose penalties.

Essentially, this is all Bill C-6.

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Business Week is not known for its radical solutions or proposals of interventionism, but I think the fact that we have that recommendation shows that we're probably on the right track. I suspect that if this sound continues and experiences such as Americans are having with double-click continue, the outcry for privacy protection is going to become quite loud as the Internet economy really becomes understood by people.

Mr. Walt Lastewka: My next question, Madam Chair, concerns the 2,000 R and D chairs and the concern from small universities that all these chairs will be gobbled up in large universities, that there'll be very little for the smaller universities. Could you give us an update on the distribution of these 2,000 R and D chairs?

Mr. John Manley: I'll give you some information. At this point I have a proposal on which I am awaiting Treasury Board approval—shortly—which will then enable me to make the arrangement public, if I receive approval.

What we've done, though, is try to ensure that there were some advantages built in for small universities. A thumbnail sketch of the plan is that we certainly will be relying heavily on the experience that universities have had of funding from granting councils in order to award the lion's share of the chairs.

However, for small universities, that is, universities that have received 1% or less of granting council funding, we're setting aside 6% of the total. If they've received relatively small amounts of funding, they'll be guaranteed at least a chair or, in some cases, three chairs; if they've received small amounts—but not really small amounts—they'll receive at least three chairs.

We're also giving them access to their chairs earlier, giving them greater flexibility in the chairs they will receive, so that they will be able to move strategically to use their chairs to try to protect themselves against what might be called “poaching” by larger universities in regard to top people.

When I'm able to give you the full details on it, I think you will see that the small universities will be satisfied that they have a package that is going to enable them not just to get a reasonable share of the chairs but also to grow their share as they are strategic about their proposals for granting council funding. As they grow their funding, they will qualify for more chairs.

Mr. Walt Lastewka: In our last study, we had a lot of discussion on SME productivity and productivity gaps. The productivity problem in Canada is in the small business area a lot. My question concerns the transfer of technology for SMEs. When we look through the estimates, it seems—although there have been some increases in the IRAP and the TPC program for small business—that as we have more small businesses and more small businesses tapping in, we are still running short of funds for small business. Again, it reflects why we have a productivity gap: the fact that we can't have or don't seem to have enough money to fulfil the transfer of technology for small business.

Mr. John Manley: I think there's never really enough money. IRAP, as you know, has been a very successful program of support for small business, particularly in adopting and using technology. Mr. Penson will be interested to know that it won the prestigious Ernest C. Manning award, about two or three years ago, I think. That's an example of how well that program functions.

But I agree with you, and I think we could wisely use additional funds in that program. TPC-IRAP is still in the process of ramping up and is becoming better known and better understood. As you know, it's delivered by the IRAP advisers. But again, with that one as well, I think we could use additional support.

The budget did have some some measures, like the reduction of the corporate income tax rate on incomes between $200,000 and $300,000, which sharply brings down the tax bill for small businesses in that range. Some of the other measures in the budget, the capital gains rollover and the lower capital gains rate, will help small business owners. But if this committee were to endorse additional funding for those programs, I'm sure the Minister of Finance would be interested in hearing about it.

• 1600

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

[Translation]

Ms. Tremblay.

Ms. Suzanne Tremblay (Rimouski—Mitis, BQ): Good afternoon, Minister.

I would like to go back to a question raised by Mr. Lastewka of the Liberal Party concerning research chairs, because I want to make sure I understood correctly. You will be setting aside, then, 6% of the total number of such chairs for small universities.

Mr. John Manley: Yes.

Ms. Suzanne Tremblay: They will be able to have up to three chairs.

Mr. John Manley: At least that many.

Ms. Suzanne Tremblay: They will have at least one, considering the funding they already receive from research councils. It will be proportional to the total funding already granted by the various councils. Is that correct?

Mr. John Manley: Yes.

Ms. Suzanne Tremblay: But how do you define small university for the purposes of your policy? Does it depend on the number of students?

Mr. John Manley: No, no. It's based on the proportion of its funding that a university receives from the research councils. If that proportion is equal to or less than 1%, we consider it a small university.

Ms. Suzanne Tremblay: I see.

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): But what is a small university?

Ms. Suzanne Tremblay: Part of a university's research funding is provided by the Canadian councils.

Mr. John Manley: That is correct.

Ms. Suzanne Tremblay: Are these funds entirely provided by the Canadian councils or are some provided by the provinces?

Mr. John Manley: All the funding is provided by the three grant-awarding councils.

Ms. Suzanne Tremblay: The sums will be proportional to what the university receives from the three councils. From what I understand, the small universities will be the first to be funded.

Mr. John Manley: That is correct.

Ms. Suzanne Tremblay: This will allow them to keep their personnel and to set up their chairs before the large universities.

Mr. John Manley: Yes. They will have the benefit of a procedure slightly more flexible than that of the large universities. For example, we are suggesting a two-level system of chairs and the small universities will be able to allocate their funds between the two. They may decide to foster young professors or, instead, to recruit a better known academic and to set up a chair that is more... [Editor's Note: Technical difficulties]

Ms. Suzanne Tremblay: Whether the university is large or small, do you intend to negotiate with the provincial departments of education, the Conférence des recteurs et des principaux des universités du Québec and the Association of Canadian universities and colleges? Among the stakeholders, who will decide which university should have a chair in a given a field?

Mr. John Manley: We've not yet decided.

Ms. Suzanne Tremblay: Will they be the ones to decide?

Mr. John Manley: University presidents will first have to draw up their respective strategic research plans. Specialists in the field will then examine these plans according to which research chairs are to be established. It will be a review process similar to the one that currently applies to grant requests and all requests will have to be consistent with a given university's strategic plan. We would not, for example, be telling a university that we think it should be engaged in biological research. It is up to the universities to decide. We do require, however, that each university develop an effective strategic plan.

The two provinces who have had the most success with grant- awarding councils are Quebec and Alberta. I do not know why. I think that they are already applying good strategic plans, and that they would probably continue to use them in instituting research chairs.

Ms. Suzanne Tremblay: Thank you. I would now like to ask you a question in an entirely different field. Since we have more time here in this committee than we do at question period, I would like you to clarify something for me. You have a Competition Bureau that costs taxpayers quite a bit, some 25 million dollars I am told. Why, then, did you grant a private entity like the Conference Board $600,000 for a study on gasoline when your own officials had already enquired into the problem? Why? I would appreciate a frank explanation. Did the Conference Board need money?

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Mr. John Manley: It is an entirely different study since the Competition Bureau's jurisdiction is limited by statute. We have acquired a good deal of experience. The Bureau can do nothing if it cannot prove that a provision of the Competition Act has been breached. We've basically responded to the members of the committee who recommended we undertake a study at the retail level so as to acquire a good understanding of the market.

Numerous aspects of the issue had to be studied. We had, for example, to determine the impact that independent suppliers have on the market. According to the Competition Bureau, prices are higher in markets where exactly the same product is available throughout the various regions. It is not surprising that prices are the same. Whether it is a competitive market or not, the prices tend to be the same.

Without proof, the Competition Bureau can do nothing. That is why members taking part in the working group suggested we undertake a wider study. One that went into greater depth than the studies that had come before.

Ms. Suzanne Tremblay: You believe, then, that we do not yet have sufficient data suggesting an overconcentration of the petroleum industry and that is why you sought out the Conference Board. Do you believe this institution will really be able to elucidate the matter? It cannot, as the committee does, call witnesses to articulate the various points of view, including that of petroleum-related industries. I do not really know what we shall make of that study.

Mr. John Manley: I think that particular recommendation was made because it seemed necessary to obtain an essentially economic point of view since we wanted to create a databank that the general public would find credible. We could have heard testimony, but we know that we would be getting conflicting points of view. It has been a long time since we had, in Canada, a comprehensive and really credible study of the issue. It would have taken the department too much time to do such a study itself since we don't really have the necessary resources. That is why we delegated that task to the organization best able to handle it. As you all know, we had suggested this study be undertaken much earlier and I, for one, would have preferred that. If we had done it earlier, it would not have coincided with significant price increases. That being said, I still think it is better to carry out that study now than not to carry it out at all.

The Chair: Madam Tremblay, is there one last question that you would like to ask?

Ms. Suzanne Tremblay: Yes, Madam Chair. My question follows up the question addressed to you in the House by my colleague from Témiscamingue. You had answered then that you had reacted to the report tabled by your liberal colleagues in 1999. Will it be possible to obtain a copy of your response to the report in question since never got a chance to read it?

Mr. John Manley: I have no objection.

Ms. Suzanne Tremblay: Was it an verbal response? No?

Mr. John Manley: No, no. I sent a letter to members of the committee. Would you like a copy?

Ms. Suzanne Tremblay: Yes, please. Thank you.

The Chair: Thank you, Ms. Tremblay.

Mr. Cannis.

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[English]

Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Madam Chair.

Minister, welcome to our committee.

Minister, I have three questions, and I'll ask all three questions and then you can have the floor.

In your statement you said “I still think we're too slow in turning Canadians' ideas into business ventures.” Aside from pointing out the difficulties sometimes in businesses getting financing, could you please elaborate other impediments companies might have in bringing their business ideas to fruition? For example, would it be in areas such as licensing, compliance, approval, etc.? Could you elaborate there?

You also touched upon tourism, Minister, and you said the revenue is $50 billion plus. Can you please give us a brief as to what undertakings your department is pursuing to enhance that field of tourism, what is under way?

In closing, Minister, most recently we've heard of Toyota, I believe it is, investing $600,000 in Ontario, and I know General Motors invested some $59 million over the summer. Can you tell me in your own way how we as a country have been able to attract these investments, contrary to what we're hearing out there: that it's difficult for businesses and we're not competitive? Can you elaborate on those investments?

Mr. John Manley: Thank you. That's a fair list.

First of all, on the impediments to getting ideas to market, a variety of things have been happening here. Some of it is reflected, for example, in the OECD report from a couple of years ago that we've talked about in this committee before, which says Canada seems to have something of an innovation gap. It consists of low levels of R and D performance in both the public and private sectors, more so in the private sector, and low levels of technology acquisition and application, especially in the SME sector. That's why Mr. Lastewka's question is particularly apropos, because that's one of the hurdles we've faced.

There have been problems—and I know you acknowledged this in your question—with access to capital. Compared to where we were seven years ago, the statistics suggest there's a lot more venture capital available now, but matching it to entrepreneurs has been challenging. The tendency of Canadian VC funds to be hesitant to invest is becoming legendary, and the reality is it's not just a question of taxation; it's often a question of where they're willing to put their funds.

Also, in the context of the BCNI yesterday, one of the young entrepreneurs pointed out the difficulty of using Canadian public markets for early-stage financing. That's why most of the Canadian start-ups' IPOs have been on NASDAQ rather than on the TSE or one of the other Canadian exchanges. As I tried to point out, while national securities regulation might be in some ways desirable as it exists in the United States, the truth is the Canadian provinces have flatly rejected that, and it's an issue that needs to be dealt with at a provincial level.

It's a combination of all of those things. But fundamentally what we need to do in Canada is strongly encourage and improve the culture of innovation. Innovation means more than bright ideas, because Canadians have proven they have lots of those. It means taking those ideas through the process of getting them to market and creating Canadian products.

Microsoft Mail was a Canadian development; Java was developed by a Canadian from Calgary; the pacemaker was developed by a Canadian and marketed in the U.S. As I said to the BCNI, sometimes I think if we'd developed the wheel, we'd have put a rope around it and dragged it across the border in order to market it. We have to promote that culture of innovation.

On tourism, we have really put our eggs into the basket of the Canadian Tourism Commission. This was a strategic choice we made back in 1994, to create the commission and to see the Canadian government's role in tourism to be primarily one of tourism promotion. That's what the Tourism Commission is there for.

• 1615

It's very much a public-private sector partnership. Its board consists of representatives of the provinces, but the majority being from the private sector. Its programs for tourism promotion seek a large private sector partnership component.

It's enabled Canadian tourism promotion measures to be concentrated in markets even among competitive players from the Canadian market and sometimes with complementary players from the Canadian market. So airlines and hotels and other resorts will work with the Tourism Commission to really create a presence in a particular market, say in the United States, for a period of time in order to gain the benefits of that market. And it truly has paid off.

Literally, when I arrived at Industry Canada in 1993, the Tourism Canada people came to brief me and said “Minister, our budget for Japan at the present time is not enough for us to buy a single daily newspaper ad for one day in Japan.” We just weren't having any impact at all. So we've increased the funding of course, but we've also done it in partnership so that we're really getting some bang for the buck with the provinces and the private sector. And frankly the Canadian dollar doesn't hurt us in promoting Canadian tourism as well.

On inbound investment, what I'd say there is we're not free of worries on that, to be perfectly frank, because our share of inbound investment in North America is not as high as it should be. So that's something we need to work on. But that isn't all fundamentals. I despair of telling this story, but in some of my attempts to promote Canada around the world, I've raised the issue of investment opportunities with foreign companies, and I've asked questions such as, “Recently you announced this large investment in North America. Why did you choose the United States over Canada?” Too often I have had the response, “Well, actually, we didn't think about Canada.” It's not that Canada competed and lost. It's that Canada just wasn't on their map.

So we've worked very hard to raise that profile. Investment Partnerships Canada is a vehicle we've created in order to do that. We have country champions within the government to go out and promote Canada and Canadian investment. We work with the private sector to try to encourage that.

In some sectors—and the auto sector is an example—we've been very successful. I wouldn't necessarily attribute our success in the auto sector so much to the measures we've taken under Investment Partnerships Canada, but I would say they demonstrate that Canada is really competitive in that sector. Whether it's the big three or the Japanese, their investments have paid off. They're making money and they're doing well. I was at Toyota yesterday for that announcement.

Since the J.D. Power and Associates Quality Awards was invented, they've issued 27 awards. Five of them have been to the Toyota plant at Cambridge. Toyota announced yesterday that for their Lexus—which as you know is their high-end, high-quality vehicle—the first time they've ever made it outside Japan, they're making it in Cambridge. What that tells you is we have really high-quality workers and we have a very competitive cost structure. That's why the investments continue to flow in that sector.

That's why we've put together Investment Partnerships Canada, to try to take that message abroad and explain to people that Canada is competitive. The KPMG study proves that. Sure, our business community thinks it would be good to have lower taxes. I don't disagree with that. But in the context of the world environment that we are in, there are more issues and more costs involved and more factors for businesses to consider than strictly taxes. When you put all of those together, we have a very positive story to tell.

The Chair: Thank you.

Thank you very much, Mr. Cannis.

Mr. Riis, please.

Mr. Nelson Riis (Kamloops, Thompson and Highland Valleys, NDP): Thank you very much, Madam Chair.

Mr. Minister, I want to pick up where you left off. You said Canada is competitive. I believe your comments earlier on what will eventually become 2,000 research chairs across the country, piled on top of the Canada Foundation for Innovation and the $2 billion there and the other programs, aligned with your earlier comments about it being the most connected country in the world and so on....

I must say, as an aside, I was happy with your comments on the pool of funds set aside for the smaller universities. As you know, they were concerned that they would simply be left out of this, but you've obviously taken care of that, and I appreciate the comments you've made.

• 1620

I want to go back to the BCNI. It seems to me they were whining a little bit. I think of the things you've commented on today, such as the incredibly lucrative research credits that exist and have existed for years and the incredible role—some of us would almost say in some cases too much—the government has provided, in terms of partnerships with the private sector to encourage more research and development. Now you've launched these 2,000 chairs across the country. You have centres of excellence. We have high-tech IT initiatives coming out of our ying-yang, and the BCNI says we need to lower taxes and address the debt to become more competitive.

Don't you think they should be taking more steps as well? The government has led the way, but I think it's rather pathetic that the government has to lead the way. In my judgment, that's the way it seems to.... When you look at the level of R and D the private sector does, it's always lagging. What more could government do? Shouldn't we be looking a little more to BCNI members and asking, “What more can you do to become more competitive in this technological world we're moving into, and the globalization of this technology?”

Mr. John Manley: Of course I think that's right. We've had a lot of indicators that in fact some of the problems the Canadian business community have had are ones you can put at the feet of management—lack of a global strategy and failure to invest in research and development, which you've mentioned. That's not true of every sector. It's certainly not true of the manufacturing sector, by and large, in Canada.

Nortel, being a successful company, almost points out the failure of other Canadian companies to do what they need to be doing. Nortel is not only our largest R and D performer in Canada, but they're doing about 25% of our industrial R and D. I don't think it's any accident that they are perhaps our most successful global company because they're making that investment. They're hiring the best of our graduates from our university engineering programs. That's great for them, but I think it points out the fact that too many other Canadian companies have been content to look for technologies they can maybe buy off the shelf or get from someone else, and they haven't built a truly global strategy.

So I think there's lots of room for self-examination on the part of the business community. I've already described some of the frustrations in financing that Canadian companies have had.

That being said, I do want to say that one of the messages the technology companies particularly have been trying to deliver to all of us is that whatever may have been the case in the past, the world is changing really rapidly. Some of that change may be good, some of it may be bad, but all of it is probably unavoidable. As I like to say, right now globalization is not a policy choice anyone can say we've made. Globalization is a reality. It thrusts us into a constant competition, and our companies reflect that. They don't have a lot of time to reflect on things; they have to make decisions quickly.

Nortel is an example of that. A couple of years ago John Roth, to his credit, made a very gutsy decision in making a large acquisition and realizing he had to bet his company—which of course makes us nervous because he's betting our company too, our best technology company—on the Internet. So far his gamble has proven to be a good one; at least the markets are now proving it. You might remember when they did the Bay Networks acquisition, the markets were not that sure. It's proven to have been a good decision, at least so far.

Mr. Nelson Riis: With respect, Mr. Minister, I wonder if I could interrupt. I only have 10 minutes and you have three hours to go here.

• 1625

Mr. John Manley: Three hours to go?

Mr. Nelson Riis: Well, however long, but there are other points I'd like to raise. I say that with all due respect.

Mr. John Manley: But it was a good answer. I was just getting to the point.

Mr. Nelson Riis: It was a very good answer.

You were saying it is still too difficult for entrepreneurs to get financing, compared to those in the U.S., and I think we'd all agree with you around this table. I want to go back to the Business Development Bank and its mandate.

I have a lot of faith in the Business Development Bank. I like the people there, but I wonder, in your judgment, if they couldn't be doing more in terms of providing some of that financing that is so much in demand. Their mandate is pretty restricted. To me, they act pretty much like any chartered bank. Is there not more we could expect from a changed mandate to the Business Development Bank, to assist in capitalizing this new, particularly IT, economy?

Mr. John Manley: I'll try to give you a shorter answer this time.

Yes, I think so. We're coming up to the period for the review of the BDC mandate. We reviewed it the last time about five years ago, so it's time to review it again. We changed the mandate significantly in 1995 or 1996, to remove the requirement that the BDC be a lender of last resort, so borrowers no longer have to prove they've been beaten up and rejected by a chartered bank in order to get financing. We've tried to focus them on areas where they could be complementary to existing lenders.

We've also, with that change in direction, put a lot more emphasis on their venture capital financing. They've done a lot more equity financing, and frankly they've done it extremely well. They have some real winners. They were early investors in Ballard Power, which has paid off for them. When we see their financial statements for the next financial year, they'll have some pretty good profits as a result of their venture capital efforts, rather than their lending efforts.

But it's time to review it again.

Mr. Nelson Riis: It's time to review, and presumably have another look at that mandate, in terms of the changing economy.

Another question along these same lines, Mr. Minister, relates to Community Futures. For those of us who represent small communities in rural areas, the Community Futures program has probably been the most successful federal government program in assisting new businesses with their start-ups. In my own community, literally hundreds of new businesses have started because of Community Futures in the Kamloops region.

They are concerned these days about the viability of long-term funding. They've heard all kinds of rumours coming down. I wonder if you can give those who are out there in the trenches volunteering their time to make these successful some comfort that they can count on a sustained level of funding for the next few years.

Mr. John Manley: I've heard some of those rumours. We've tried to put them to death, because I think our experience with Community Futures, not unanimously but by and large, has been very positive. They've handled the funds that have been entrusted to them very responsibly, and they are one of the few sources of what you might call micro-lending in communities across Canada.

The budget had a significant additional investment in Community Futures that should enable us to finish covering the country. Not all regions of the country at the moment have Community Futures, so we will be able to finish that. Also, based on business plans and requests, we will be able to increase the capital in existing Community Futures organizations.

In the budget there is $54 million over the next three years to both create new CFDCs and enhance the existing CFDCs. So they should be encouraged that they're here for the long haul.

Mr. Nelson Riis: That's very encouraging to hear.

I'd just like to end my questioning by echoing a couple of comments made by Charlie Penson on concerns about the Small Business Loans Act and the use of it by some of the financial institutions to maybe top up some of their more risky loans. It's something I think we should be looking at some time in the future in terms of how to make that program more effective. It is kind of a loose and sloppy program. It's certainly helping a lot of people, but the dollars involved could be put to better use. That's just more of a statement than a question, Mr. Minister.

• 1630

Mr. John Manley: You know, if the committee wants to have another look at it, it's always possible and always worthwhile to look at these programs. What we tried to do, in fact, with the 1995 amendments....

We found at that point that a lot of borrowers didn't know they had government guarantees. There was nothing on the forms they filled out with the banks, so the banks were able to pass them over, get the guarantee, and the borrower wasn't even aware of it.

With the changes came a fee, frankly. The borrower has to pay an upfront fee for the guarantee. That way they know about it. Secondly, it was a deterrent on use, which is why the use dropped off after the 1995 changes. Furthermore, it made a lot of lenders say, “Well, wait a minute, I don't need a government guarantee. My credit's good enough without it. Why should I pay this extra fee for a government guarantee I don't need?”

So I think we addressed some of the problems, but I'll tell you, this is a very efficient program. It doesn't require a lot of bureaucratic involvement compared with virtually anything else you could design. The very fact that it's there gives us a vehicle if we were to, say, go into an economic downturn. It could be easily turned into a means of increasing available capital at a time when the rest of the system was closing down capital.

So it's pretty tight right now, but I wouldn't necessarily say, if the economic cycle changed, we wouldn't want to talk about whether we would open it up more if what the economy called for was this very ready way to turn the screw a little bit and provide additional capital for small business.

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

With regard to the comments from Mr. Riis and Mr. Penson, they weren't part of the committee when we did the review of the SBLA. There is an opportunity for the committee to look at the pilot projects, and we could have the officials before us to describe the changes that were made. A number of changes were made in the last review.

Madam Jennings, please.

Mr. John Manley: Mr. Sulzenko tells me we'll be back before June on the pilot project.

The Chair: Yes. There'll be an opportunity then for members to discuss it.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Minister Manley, for your presentation.

I'd like to revisit the issue of knowledge and sharing that knowledge in an equitable fashion across Canada. We have a lot of rural and remote communities that don't have access, for instance, to high-speed Internet, that don't even have access to single telephone lines. They still have party lines.

I'd like to know what, if anything, Industry Canada is doing to address that issue and to ensure that access to wireless communications, such as high-speed Internet, is made equally accessible to the remote and rural communities as it is currently to the urban communities.

Mr. John Manley: First of all, the cottage my family rented last summer had a party line, which made calls from the Prime Minister's Office briefer than would otherwise have been the case. So sometimes it's not such a bad thing to be on a party line.

Some hon. members: Oh, oh!

Mr. John Manley: But it's pretty hard to use the Internet from a party line, I can tell you that.

This is a major issue for Canadians. In fact one of Mr. Riis' colleagues raised the question in the House a couple of days ago. If we're going to have the most connected nation in the world, we need Internet access to be affordable for people wherever they live.

We've put in place some programs to try to facilitate access. Under our community access program we're now up to about 4,500 community access sites around the country.

Ms. Marlene Jennings: But not for business.

Mr. John Manley: No, that's for the public. It's not for business, you're right, but at least it's moving in the direction.

I think we're going to see a lot of communities choosing to use some of their infrastructure money in the new infrastructure program as a means of acquiring higher-speed access to the Internet. At the same time, the CRTC, in one of their decisions not that long ago, for the first time defined basic service as including local Internet access. Now, if you think back a few years when the Information Highway Advisory Council reported, the best definition they could come upon for basic service was “basic telephony”.

• 1635

So we've moved to basic Internet service being not a long-distance call away. I think there's a lot of movement in that direction, but it is crucial that we move quickly if we're really going to meet the needs of the Internet economy.

Ms. Marlene Jennings: I really appreciate that.

I want to revisit one of the issues I believe my colleague Mr. Lastewka brought up in terms of productivity. The hearings we've had here have led us to look at the issue of not just innovation but also the transfer of information technology and the transfer of processes developed outside of Canada.

It appears to be quite clear that our business sector doesn't do as much as they should do, either in developing our own innovative technologies and products or in transferring or bringing in the information or processes that already exist.

I was kind of amazed when I read the reports of BCNI slapping the government down. When I look at the business sector and what they're doing to encourage small and medium-sized business to actually go and get that information from elsewhere, bring it in here, apply it, and do their own development of the new technologies and so on, they don't seem to be doing a very good job of it.

I don't know if you'd care to comment on that, Minister Manley.

Mr. John Manley: Where was I in my other answer over here when I ran out of time?

Some hon. members: Oh, oh!

Mr. John Manley: I think this is clearly true. What I tried to propose to the BCNI was that we really needed to take a partnership approach. We're in a very intense international competition, and we just don't have the time and resources for government and business and labour to fight with each other in Canada. We have great, big competitors out there who are waiting to squash all of us. We really need to pull our resources together and ask what kind of strategy we can follow to enable us to be winners in the world. Because everybody's going to win or everybody's going to lose. We're going to be in this together.

I think the challenge we face is that we are very close to a very big neighbour that in certain aspects operates on a different basis than we do. As Canadians, we have to be quite transparent about what kind of society we want and what we're willing to pay for. We can't have the same tax rates as those in the U.S. at the same time as we want better government services than they deliver. I think as Canadians we need to understand what various trade-offs we're making.

At the same time, I think the BCNI needs to recognize that we didn't get into the hole we were in overnight. It took us 25 years of running deficits to run up the debt to where it is. The fact that we got out of a deficit situation as quickly as we did, faster than anybody else in the world....

We turned our fiscal situation around, and at least a moment of silence thanking us for that effort would be gratefully received.

Some hon. members: Oh, oh!

Mr. John Manley: It doesn't mean we have solved everything. Of course we still have a debt. But you should listen to some of the speeches I've heard: we want to lower the debt; we want to lower taxes; we want to increase investment in education at least; and by the way, we like health care. All of that was said.

Now, maybe I just don't do arithmetic well, but isn't that what we all agree on? We'd all like to have lower debt. We'd all like to have lower taxes. We'd all like to have a safe health care system. We'd all like to increase our investment in education, not to mention the infrastructure and a few of the other things that we all agree are important.

But I never hear anyone at the BCNI say we're wasting money when we invest in education. They won't say it's a waste of money to invest in health care, because they know the political response to that would be rather abrupt. They don't think infrastructure is wasted money. You have to square that circle somehow.

• 1640

The Chair: Thank you very much, Madam Jennings.

Mr. Nelson Riis: Madame Chair, might I have a minute supplementary?

The Chair: We're going to do a second round, actually.

Mr. Nelson Riis: I would just like a minute one. It would take 30 seconds.

The Chair: Okay. Mr. Penson says yes.

Mr. Riis.

Mr. Nelson Riis: It's about a point that Madam Jennings made, Mr. Minister.

The Chair: Sure.

Mr. Nelson Riis: You were saying that we could perhaps use the infrastructure program to gain access to the Internet for some of the more remote communities. How would that be done? What will you do, set up, in the community to gain access?

Mr. John Manley: Some of them have already done that using the infrastructure program the first time around, back in 1994. Lanark County outside Ottawa here used some of their money to increase the fibre-optic service to their community, and then they launched this...and you may have seen some of the billboards out there. Their slogan is “Ten minutes to the cottage, ten seconds to Tokyo”. The City of Grande Prairie, Alberta, although they didn't use the infrastructure program, to their credit five years ago realized that this was really important, and they had Telus come in and, with municipal support, they ensured they had fibre-optics from Edmonton to Grande Prairie and a ring of fibre-optics built around the city.

So it can be done with municipal resources, and the infrastructure program will provide some communities.... They're going to have to get the phone companies to cooperate, but it's a tool to use if they identify that as a strategic priority for themselves.

The Chair: Thank you.

Mr. Penson, please.

Mr. Charlie Penson: Thank you.

I agree with you, Mr. Minister, in what you just said in response to Madam Jennings that this is all a matter of priorities. It's a matter of priority, isn't it? When government has a certain amount of money to spend, it's a matter of where you prioritize your spending priorities.

I want to take off where Mr. Riis left off on the question of BCNI members and business. What more can they do? It's a rhetorical question, I guess. But they can move. And they do move. They move to where conditions are better. As you just said, taxes are not the only reason businesses locate where they do, but it is a very important reason.

The questions I have, though, really have to do with priority. Mr. Manley, you administer the industry department's some $4 billion budget. In that department, we have regional development programs that suck up almost a billion dollars of that. I know there are ministers who delegate it from there, but it's your department. Is this a good priority? Is this a good use of public money to achieve increased productivity and standard of living?

My second question, if you don't mind, has to do with TCP and the Auditor General. The Auditor General talked about the leveraging of TCP moneys. The TCP annual report for 1998-99 said that there had been $775 million in repayable investments that had leveraged a significant amount more. The Auditor General in this 1999 report criticized TCP for their explanation of the leveraged funds. What he said, after examining $2.4 billion that was claimed to be additional funds, was that the auditors found that TCP counted other government funding, federal and provincial tax credits for research and development, investments made prior to project funding, and possible future investments and related projects, even money spent outside the country, in stacking, if you like, to achieve that. He recommended that TCP clarify this situation. My question is, has that been done? What progress is being made to that end?

Mr. John Manley: Let me respond to all three of those, not just the two. Yes, they can move. But as John Roth said to BCNI yesterday, one of Canada's advantages is that the talent they hire is relatively inexpensive. Engineering graduates here are costing them less than they do in the United States, and that's one of the reasons they keep hiring the best in Canada.

Mr. Charlie Penson: But the engineers are moving too.

Mr. John Manley: Secondly, there's a whole bunch of things here. It was also made clear yesterday that attracting the talent often means hiring people where they want to live. So quality of life becomes a factor for a lot of the high tech workers. They can choose where to go. I can tell you, if you want to visit a homeless shelter where some people are making $40,000 a year, try Silicon Valley. It's a great place in terms of the job opportunities that are there, but it's also not always the most conducive.... If your ship comes in, it's great, but it can be tough. Not everybody wants to live that way.

• 1645

We have examples here of, for instance, Cisco opening not just an office but a whole facility here in Kanata. They have workers who have come back to Canada from California because they prefer to be here.

One of the high tech companies told me they prefer investments in Canada now, because they're not doing any more in the valley. Why? Because they were suffering turnover rates in their facilities in Silicon Valley of 30% to 40% per year. You can't complete a project if you can't keep your people until the project ends.

Siemens told me that their turnover rates in Canada were 5% a year, in the U.S. they were 15% a year, and in Mexico they were 15% a month. We're talking about knowledge workers. So there's the—

Mr. Charlie Penson: Still, Canadians are leaving for the United States.

Mr. John Manley: Yes. Every country, every location is a collection of pluses and minuses. No doubt we have some minuses of our own. We need to try to work on those. But we have a heck of a lot of pluses too.

Regional development agencies, just to be absolutely clear, do not come under the Department of Industry. They are stand-alone departments. They have their own deputy minister. As you know, they have a secretary of state, who reports to me and who looks after the day-to-day operations. Each of them of course will be coming to this committee, and I think you can pursue your questions in more detail with them when they come in. But you'll see they differ quite significantly among themselves in terms of what their programming is and what kinds of services they offer.

The CFDCs, for example, that Mr. Riis was talking about, which I think have been very positively received around the country as being vehicles not just for information but also for micro-lending, are a large proportion of the budgets of those agencies. We could reorganize, I suppose, and put them all under Industry Canada, but I'm not sure that would accomplish a particular purpose.

Mr. Charlie Penson: Mr. Minister, can I ask you then, as the Minister of Industry for the Government of Canada, is it your view that regional development money, even though it might be under other ministers, as you say, is a good use of public funds in order to achieve productivity and standard of living increases?

Mr. John Manley: Sometimes it is and sometimes probably it isn't.

Mr. Charlie Penson: Have you done any sort of net analysis?

Mr. John Manley: Over the years there's been a lot of work on it, and you've seen changes in the direction that we've indicated for the regional agencies over the last number of years, trying not to focus them on every kind of project that comes along, but focusing on supporting international trade, recognizing that building a regional economy requires that it have an outlook that's bigger than the local region.

As for technology, access to technology, it's one thing if you're in a community that has post-secondary educational institutions; it's another thing if you're in a rural remote area where technology is something that has to come in from a long way off.

In tourism, which very often is the key component for entry-level employment in any region, I think it would be fair to say that we've had quite a bit of success. In some of Canada's regions, the access to capital is extremely limited.

Have there been failures? Yes, but there have been a lot of successes too. So I think it's simplistic to say all regional development programming is misguided. I think there's room to criticize any program, because sometimes it doesn't work, but that doesn't mean it never works.

With respect to the TPC, we have dealt with the AG's comments. We've certainly settled that issue with the Auditor General. Basically, our statistics now indicate about $4 of leveraging for every dollar invested by TPC, and the Auditor General, as I understand it, is satisfied with how we're calculating it and how we're reporting it.

• 1650

The Chair: Thank you, Mr. Penson.

Mr. McTeague.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you, Madam Chair.

The great thing about being last, in more ways than one, Mr. Minister, is that you get all the good questions asked first and you're left with the odd tidbit here. I'll try to do my very best.

First of all, I want to thank you. In regard to your department, I think many of us here on this side have probably run the gamut with the Competition Bureau and certainly have made them worth their $30 million or whatever amount of money that is spent every year. The commissioner, the civil and criminal divisions, and the amendment section have been run up and down on a number of fronts.

We've had a lot of good issues come before us in the past year or so, at least since I've sat here where you were last year with one of my bills, in Bill C-201. I can't tell you how important it is to acknowledge that half the recommendations that were made by a committee of 47 members a year or so ago have effectively been taken up by a board that I frankly don't believe is about to sacrifice its excellent reputation on a simple study on gasoline or on the industry itself.

What we've done here, and what you've done in rightly moving ahead with this, is to give an independent and objective review of the industry. I thank you for that because, as we all know, politicians and others might be considered somewhat biased at any given time. So I think this matter may well be put to rest and some decent policy may ensue from it, perhaps some reflection of what we've done.

I'm also impressed with your offer to take up some of our bills. Some of us have good experience in trying to get bills through, and we know how long it takes as private members. So I thank you for that.

I want to turn around. Actually it has been a very interesting day. My former employer at Toyota in public relations is celebrating yet another milestone. This is their twelfth year at Cambridge. Of course they're not only selling luxury vehicles. I worked for the Lexus division and for the Toyota division. So it's good news. Unfortunately I can't afford those vehicles with my wage.

Mr. John Manley: I told them that yesterday.

Mr. Dan McTeague: Minister, I too am concerned at the tack and the approach taken by the Business Council on National Issues. I have a copy of your response, which I think was very effective. Taking the high road is always interesting because it seems to be quite too often not very well travelled.

In this circumstance, I was concerned about two outcomes more than just the question of taxation, inferred by the BCNI in its attempt to try to paint its vision of the 21st century. One dealt with the idea that the merger guidelines that exist in Canada are too stringent or too tough and make it impossible to have a more hospitable environment for business.

I understand and appreciate that, especially against the backdrop of a nation that is increasingly looking more like a monolith in many key industries. Those may be of necessity, but it was that, measured with the idea that Canadians somehow punish or are not favourably disposed to economic success, that I found very troubling.

I wonder if you could enlighten us or give us a few ideas as to where you think we could get the BCNI to finally say some good things about Canada and to really encourage the fact that a lot of small and private enterprises are trying to make the grade.

Mr. John Manley: As I say, I think actually in the presentation that Mr. d'Aquino made yesterday morning, he had come a long way towards trying to say some positive things. I'm not quite sure what happened overnight, but there was certainly a lot more positive in his presentation than I had been anticipating, based on the report that came out.

I think it's not untypical of a business community anywhere in the world to be frustrated by government. We operate on a different basis, on different timeframes and at a different speed. That's the case not just in Canada but in other countries as well, including ones that were praised for their economic performance by the BCNI.

You might wonder, for example, from one of the photos I saw in today's paper, whether Bill Gates was offering President Clinton any comments on the regulatory environment in the United States the other day when they were seated beside each other. Of course we're pointing to the U.S. as an indicator of the kind of environment that some people would like to have. That experience suggests that maybe it's not always that easy.

That being said—

Mr. Dan McTeague: That's very subtle.

Mr. John Manley: Mr. McTeague, one of the challenges we're going to face in Canada is this: As the world economy increasingly becomes globalized, the question of scale is important. One of the things that will be a challenge for us going forward is how to ensure that we have some Canadian champions in many sectors while at the same time ensuring that this championship is not based on a dominance of the domestic market to the detriment of Canadian consumers. I don't think any Canadian champion, if you can envision one, is going to be good enough to win in the world if they're not subject to really tough competition in the domestic market.

• 1655

We as Canadians need to recognize that what looks enormous to us.... Just to take an example, the telephone company, Bell Canada, is a big company in Canada. It's smaller than the smallest of what they call the Baby Bells in the United States. That scale becomes important when the competition becomes global, but we mustn't sacrifice a competitive domestic market in order to generate that scale. In fact I think what we need is business leaders who develop a global outlook and are able to face tough competition here at home.

The Chair: Thank you very much.

Mr. John Manley: I'm sorry if I used up too much time.

The Chair: That's okay.

[Translation]

The Chair: Mr. Dubé.

Mr. Antoine Dubé: Minister, in your opening statement today, you mentioned a certain number of Private Members' bills. You did not mention bill C-213 on shipbuilding.

Mr. John Manley: Does that not have to do with another committee?

Mr. Antoine Dubé: No, it concerns this committee. If the bill is currently been examined by another committee, the finance committee, it is because two of the three proposed measures concern the Minister of Finance. I've also noticed a change or at least an evolution in your own concerns which now appear closer to... You have even entered into consultations with the people from the marine shipyards in the Atlantic region. Would you tell me what point you've reached in your consultations with the people from the marine shipyards, from the shipbuilding industry.

Still on the same topic, the other day, in the House, you stated, in answer to one of my questions, that there is, worldwide, a 40% excess capacity in the shipbuilding industry. I have here a note dated November 16th, in which John Banigan, an official of your department, states that these forecasts are based on a certain number of trends observed today, but that this overcapacity would end by 2005 and that, finally, fleet demand has actually increased because 45% of the fleet worldwide is more than 19 years old. Ships normally have a life span of 20 years. After that, they need an overhaul. Most of the G-7 countries have rigorous standards of seaworthiness.

Is the percentage of ships plying our waters acceptable? Sixteen per cent of the ships fly the Canadian flag, but only 4% of them have actually been built in this country.

I wanted to ask you what stage you had reached in your consultations. The election calendar is set by neither one of us, but might we expect, before the next election, to see introduced new measures in favor of shipbuilding? I have some good news: Davie has restructured itself in partnership with an American consortium. That means that this industry can still attract foreign investment. That being the case, what do you intend to do to help the industry?

Mr. John Manley: We are trying to consult all the stakeholders. First of all, we have to make sure we all understand the situation in the same way. According to information we've received, there is a 40% excess capacity in the sectors where Canadian shipyards are working. That is a considerable problem. We shall first of all have to see if everyone agrees on this. This is a very important point.

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Secondly, I cannot indicate the new policies or the new programs we would intend to introduce since that will depend on the consultations we have with all the stakeholders. But we must make sure that everyone has the same grasp of the existing problems. We recognize that there are, in a number of Canadian communities, marine shipyards that have a long tradition and whose employees have contributed greatly to this country but we are not in a position to give them subsidies like the ones that they have in certain other countries.

I suggested to liberal members that they examine in committee the bill you introduced because I believe that might help them to get a better understanding of the situation. At the present time, I cannot say that I have already determined what the best policy solution would be.

Mr. Antoine Dubé: There is one more thing I would like to know. In a statement you made in the Maritimes, you referred to a study on the marine shipyards of the Atlantic provinces. I would like to make sure that that study encompasses all shipyards in Canada. There are two in Vancouver, there is one in Port Weller, Ontario, and then there are those in Quebec.

Do you see anything happening? You made no commitment in that regard, but I know that in the past the Liberals had sort of undertaken to organize a summit with all the interested parties in order to come up with some solutions. Do you think that might happen in the coming months?

Mr. John Manley: First of all, I would say that I have been concerned by the situation since 1993. There were, at that time, problems that still have not been resolved. There is nothing new about MIL Davie.

Mr. Antoine Dubé: No.

Mr. John Manley: This is something we debated in the House five years ago. Since I have been minister since 1993, this is not the first time this issue has come up.

Secondly, I would like the Maritime provinces to know that this problem does not exist only in the Atlantic Region. I know, for example, from reading the newspapers, that some people say, that if there had been marine shipyards in Ontario or Quebec, action would certainly have been taken. Well, as you have just explained to us, there are shipyards in Ontario and in Quebec, and in the course of the last ten years there were important obstacles raised in that respect in Ontario. There also are shipyards in British Columbia and there, too, we face a number of obstacles. At the present time, there are very few in Alberta or in Saskatchewan, but you never know.

With regard to the summit, I must say that I undertook no such commitment. I do not wish to create a situation that might turn into a media circus. With officials of my department, I have attempted to meet with all the groups and all the individuals who might have information that could be useful to us and who should react to the facts we shall be setting out. After that, we shall see whether it is worth having a meeting or a summit, but I am not yet committed to organizing one.

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Mr. Antoine Dubé: I would like to raise one final aspect if I may. It is a key aspect which the committee has already addressed. The report has not yet been tabled. Is that not so?

[English]

The Chair: It's not tabled yet.

[Translation]

Mr. Antoine Dubé: Well, in that case, we will not talk about it, but I must say that I have noticed an evolution in respect to that issue in the thinking of my colleagues opposite and of all my other colleagues as well.

The Chair: I think in that respect that the change has occurred mostly on your side.

Mr. Antoine Dubé: Do you not think it has occurred on both sides?

It is often felt that shipbuilding is a traditional field of activity. I wanted to invite you to see the technological side of the industry, just to put things in perspective. I don't wish to hide anything. There really is added value in that respect and I would invite you to come to Lévis. But I am sure that it is the same elsewhere: there are engineering divisions. Because of the Tribon shipbuilding system, our Canadian shipyards are thought to be among the best in the world in terms of engineering. I've even seen Daewoo, in Korea, build petroleum platforms according to blueprints drawn up by marine engineers in Lévis. That is another aspect we might wish to examine.

The Chair: A brief question.

Mr. Antoine Dubé: Would you be in favor of stressing the technological side of the shipbuilding industry in order to change the perception of people who still see it as a traditional and antiquated activity?

Mr. John Manley: I do not believe we should distinguish between traditional industrial sectors and industries connected to the new economy. The distinction that needs to be made is, rather, between the industries that use the new technologies to improve productivity, and the others. Those that don't will lose out whether they are manufacturing computers or some other product. It all depends on competitiveness.

We are not saying that shipbuilding is not a high technology field. I have been to marine shipyards. In St. John's, where they built the frigates. It really is a high technology activity. The same goes for the frigates that were built in Lévis. But that is not the point. The important thing to know is why, with all this technology, we are still unable to sell to other nations. That is the issue.

Mr. Antoine Dubé: All the other countries subsidize shipbuilding.

Mr. John Manley: If there are subsidies, what we need to decide is whether Canada is going to try to...

Mr. Antoine Dubé: No.

Mr. John Manley: You say no.

Mr. Antoine Dubé: We do not agree with you.

Mr. John Manley: Now there is a more complex issue. Can steps be taken to remedy the situation? Would it be necessary to foster a restructuring of our shipbuilding industry to help them shift to another type of activity? I do not know, but if we want to find a solution everyone can agree on, we will more or less have to be reading from the same score. That is the idea behind the process that is currently underway.

The Chair: Thank you, Mr. Dubé.

[English]

Mr. Lastewka.

Mr. Walt Lastewka: Mr. Minister, I want to talk about another IT problem that we have in Canada, and that's internal trade. You've been getting off too easy today, so I want to get into—

Mr. John Manley: I've had an injured IT band. If you know anything about muscles....

Mr. Walt Lastewka: Regarding internal trade, the provinces continue to be co-chairs, working groups are very slow in getting things done, and then the federal government gets criticized for not moving ahead. Could you bring us up to date on that?

Mr. John Manley: It's really Mr. Sulzenko's fault. He was the chief federal negotiator during the negotiations leading up to the 1994 agreement.

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This has been a very unsatisfactory file. In 1994, we signed the internal trade agreement. It included among its provisions an agreement that we would complete chapters such as energy within a year. As we sit here, almost six years later, the energy chapter is not yet finished. It's not a matter of federal jurisdiction; it's provincial jurisdiction. Quite simply—

The Chair: Mr. Minister, could I ask you not to play with the earpiece, it's causing a ringing here.

Mr. John Manley: Really?

The Chair: Yes, it's very sensitive in this room. Thank you.

Mr. John Manley: It was ringing when it was in my ear, that's why I took it out.

The energy chapter isn't done. Other commitments were not kept. I have to say that the federal government's only potential role in this—unless we were to try to exercise fairly new approaches under the trade and commerce power in subsection 91(2) of the Constitution—is limited to trying to cajole and encourage the provinces to make progress. I think if we were to use subsection 91(2), first of all, it would not apply to all the barriers; and secondly, we would probably be faced with quite a lot of legal action in the courts before we ever resolved it. That's why we've tried to pursue a cooperative approach.

Frankly, this is one area where the provinces have shown very little inclination to move; and secondly, the business community, which ought to have a lot of interest in this, only raises it with the federal government. I heard it again at the BCNI yesterday. But they don't beat down the doors of the provinces to ask when they are going to do something about this. So they don't.

Mr. Walt Lastewka: The next time the first ministers of the provinces meet for their workshop to gang up on the federal government, we should send them a letter to remind them that internal trade is on their agenda and that maybe they could do some work on that.

Mr. John Manley: In fact, we've had a few of the first ministers communiqués that come out of those first ministers conferences the provinces have every summer that have committed them to making progress on internal trade. I can assure you that every time we've had a meeting of ministers after that, we've made exactly the same progress as we have before. Even that doesn't seem to work.

Mr. Walt Lastewka: My last question, Madam Chair, is on chip manufacture. We're trying to have a chip manufacturer built in Canada. We've always looked at it from the standpoint that it's a good opportunity and it would be good for Canada. Is it time for Canada to invest to have a chip manufacturer in Canada? The spillover from having one.... I've been tracking the one that was installed in Ireland, and it's just fantastic. Do you have any comments?

Mr. John Manley: You may have been following it in the newspapers. Partly through Investment Partnerships Canada, we've been working very hard with a Taiwanese manufacturer of silicon chips. We're in competition with other countries. One or more of the provinces may well be direct or indirect investors in such a project if it's won by Canada. At the federal level, although we don't have vehicles to directly invest, we do certainly have programming that could help on the training side, and we have various tax advantages that are there for research and development, as well as the availability of patents that are the property of the government. So I think there is a package of things we can work on.

• 1715

I had the occasion to visit a number of those facilities in Taiwan a couple of years ago. I made a cold call essentially on Mosel Vitelic in September 1998. We happened to catch them just at the point when they were considering a future investment. The chip market was very low at that point in time. They forecasted that it would go up. They were right, although their timetable has moved back a bit. They actually followed that meeting with a visit to Canada within about six weeks in order to visit a variety of possible sites across the country.

Two are still in the running—Montreal, and Burlington, Ontario. The provincial governments are working closely with the company. The municipal governments are involved in it as well. If Mosel makes a decision on where it would locate in Canada, then we'll be in a position to more directly engage in negotiations with them.

But fundamentally, it has to be a private sector decision. There are a lot of advantages. Our plus-minus score sheet is very good on this one. U.S. sites have been eliminated, I understand, so we're actually competing now with a European site. I think our chances are very good.

But I think it takes the initiative of a large experienced manufacturer. It's not something the government would do on its own. We have to...and we'll continue. We virtually now have accumulated information within our department on every major chip manufacturer in the world and what their plans are. Our mission is to make sure we're on the list any time an investment decision relating to chip manufacturing is going to be made. If we lose a fair competition because we don't offer the same level of subsidies, well, that's one thing. But I don't want us to be eliminated without being considered.

The Chair: Thanks very much, Mr. Lastewka.

I have a 60-second question for Mr. Penson, then a 60-second question for Madam Jennings.

Mr. Charlie Penson: Thank you.

I want to go back to the small business loans program. When we had the Royal Bank here under that committee, I asked, if a business came into a bank and asked for financing, how would it be divvied up? How would they decide if the bank would finance it or the Small Business Loans Act would finance it?

Essentially what she said in reply was that the soft side.... A restaurant, for example, would borrow money for the hard assets from the bank, and the soft assets like decor would be under the Small Business Loans Act. I'm just wondering, if that's the way it works, isn't that a recipe for a lot of potential for losses under the Small Business Loans Act?

You may not have that here today, but I would be glad if you could address it as a response later on.

Mr. John Manley: I'll try to get a more specific response to you on that.

One of the things we've tried to do—and we think we have it about right—is to balance the fees that exist under the program with what we anticipate the claims to be. It's still hard to say whether we have it right or not because of the fact that I mentioned before—it takes a few years for us to really know what the default rate's going to be.

But we've tried to target this so that we're breaking even—in other words, it's not actually costing the government anything. It's financed by the users, who pay the upfront fee in order to acquire the loan.

If we have it right, again, what it does is encourage additional incremental lending.

The Chair: Just on that, Mr. Minister and Mr. Penson, I would encourage Mr. Penson to go back and review the committee hearings that were held during the last session on the SBLA, because one of the things discussed was leasehold improvements, and this committee made a recommendation that they still be included. So I would encourage you to listen to the testimony and review the discussions that were taking place at that time.

Mr. Charlie Penson: Maybe it's time to review.

The Chair: Well, we're going to be having them here again before June, but I think you should take a look at what we heard at that time.

Madam Jennings, please.

Ms. Marlene Jennings: Very briefly, what, if any, legal impediment exists, either through the North American Free Trade Agreement or any other trade agreement that we've developed, that would preclude Canada from adopting legislation similar to the Jones Act? It says that any ship that plies Canadian waters has to be built, refitted, repaired, and maintained by Canadian companies in Canada. I'm curious about that, because the Americans have that.

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Mr. John Manley: The answer to that is that certainly under NAFTA there's no impediment, because we can do whatever they want to do.

If you go back into the history of this, in fact, before the free trade agreement was agreed to—Mr. Sulzenko is implicated in this one as well; I'll blame him—the transportation sector was included and was pulled out by the Americans towards the end. Otherwise the Jones Act would have been caught. Once their transportation sector realized that, they moved in on it very quickly.

I think if you go back either in the House or in committee, you might find that when I was transport critic in opposition, I raised the question with the trade minister at the time about the Jones Act and whether we weren't going to make some progress in NAFTA on it. I received an answer that they would like to do so, and of course, nothing was able to be accomplished.

However, I think it would be doubtful that a Jones Act for Canada would really accomplish a lot for the Canadian industry. It sort of works for the Americans because their domestic market is so big, but the problem for Canada is that we really need access to an international market because our domestic market is so small.

The Americans, even with the Jones Act, barely account for 1% of the world's shipbuilding industry, which means they're not competitive. They're only keeping their yards going because of the Jones Act, and shippers are actually paying the cost of the Jones Act, even though they don't know it. This is the economic giant of the world. If they were competitive, they would have a much bigger share of the world market than they do.

The answer to your question is really, why would we want to? What would we gain from it other than imposing significant additional burdens on our shipping industry that would have to be picked up by consumers?

The Chair: Thank you very much, Madam Jennings.

Thank you, Minister. We have indulged your time this afternoon, and we appreciate it.

I have a quick question to pick up on Madam Jennings' earlier comment with regard to the multi-point microwave communication system licences that were distributed or given out in the past few weeks.

From a rural and small community perspective, there are a number of concerns, and perhaps from an innovative perspective as well, that the government is being very cautious in how those are awarded, in asking a company to come forward with the technology when we have heard as a committee that there may already be technology out there that could be assisting rural communities. Is there an accountability process in this licensing to assure rural communities that this technology will arrive in due course, in a timely fashion?

Mr. John Manley: Yes, there are conditions on the licences that relate to the speed and distribution of availability.

The process itself is one with which the department is familiar. It has been used in spectrum allocation before. It's a comparative basis. It entails a very thorough analysis of the proposals, not just what's stated but also the capacity to deliver.

In addition, in this case, because the MCS spectrum is seen as being a very powerful tool potentially for distance learning, learning agencies in each jurisdiction, each zone, were identified and asked to provide us with a third-party analysis of the learning package, which was included with each of the proposals. I can say that with all 13 licences, we endorsed the recommendation of the third-party learning committee.

In addition, the analysis that the department conducted with respect to the business plan and the capacity of the applicants to deliver what was promised was obviously a crucial factor and led to the allocation we made.

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The announcement really is a precursor to a negotiating process that leads to contractual obligations at the time the licence is issued. Those contractual obligations are enforceable by the government if they are not fulfilled by the successful licensee.

The Chair: Okay. You should be aware that a number of communities have raised concerns that there is technology available out there, but, they feel, it's going to take them a long time to get access to that technology.

I come from a community that is both rural and urban, yet when you look at the size of the GDP where I come from and see that we still have no single-line access in part of it, it's very frightening to think that parts of the community could be serviced and are not right now, and to think that there may be other technology out there that they are going to wait longer for.

Mr. John Manley: I think the reality is that we believe the licensees we chose are the ones that are going to deliver the service most rapidly. Other applicants, of course, are going to come along and say they could have done it better. They certainly went around beforehand and said they would do it better. There's no way to disprove that, because there could be only one licence in a region. No economic model would work with our awarding multiple licences. Even in rural areas with satellite service, the service will be competitive, of course, to a certain extent, for a lot of what's offered on it.

There's no real way to disprove it when somebody comes along and says “Oh, they made a mistake, and we could have done it better.” All I can assure you of is that the speed and coverage were important factors in determining who would get the licence. We think we made the best decision based on those criteria, and on the capacity of companies to actually deliver what they promised, what they said they could deliver.

The Chair: I know you'll keep their feet to the fire to ensure that it does happen, and obviously in an accountable fashion, because, as we discussed earlier, rural technology, rural communities, and you talked about the infrastructure program.... I hope that we, as a government, also recognize that rural communities also have the need for basic infrastructure or traditional infrastructure, and I hope we would look at the feasibility of increasing those dollars to ensure that small or rural communities are not forced to choose either/or when they need both. I hope we would keep that in mind as we look for development in those areas—where 30% of Canadians reside.

Mr. John Manley: In fact, you may want to consider whether the committee would like to ask the successful applicants, or one of them, to come before the committee and talk about their plans. I certainly would be more than happy to encourage them to accommodate such a request.

The Chair: We will be sure to do that. We appreciate your assistance.

We want to thank you, Minister. You've been more than generous with your time. It has been a very good discussion, and I'm sure the secretaries of state who follow will have a number of tough questions placed to them as well. We do appreciate your time. We look forward to the next time we get to meet with you.

Mr. John Manley: Thank you.

The Chair: The meeting is now adjourned.