INST Committee Meeting

STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY

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

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 30, 2001

• 0835

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I now call the meeting to order pursuant to Standing Order 108(2), consideration of the economic impact on Canada of the September 11, 2001, terrorist attacks.

Just to remind everyone why we're here this morning, the committee has invited major industry stakeholders to define their specific circumstances over the next few days and to identify the new problems they face, and to describe their immediate and long-term responses and specify the actions they believe governments, federal, provincial, and municipal, should take.

We believe the participants will help define the scope of the committee's inquiry. That's why we're very pleased to welcome this morning the Honourable Brian Tobin, our own Minister of Industry, to give us some information as a starting point and to give us some guidance.

Minister.

Hon. Brian Tobin (Minister of Industry): Thank you very much, Madam Chairman, and I thank all the members of the committee for the opportunity to appear before the Standing Committee on Industry, Science and Technology to begin what I know will be a very thorough overview of the state of play of the Canadian economy over the days and weeks ahead.

Clearly, in the wake of the events of September 11, every government in the world, certainly the Government of Canada, has had to pause and reflect upon its priorities in both the mid and long terms, but in particular in the short term. First and foremost, the need of governments everywhere is to ensure the security of our citizens, and to ensure the security of our borders as well. But that security must not come at a cost of losing sight of the important agenda items before governments all around the world or detracting from the basic nature of our society or from our individual freedoms.

[Translation]

Today, I want to talk to you about the economic situation in Canada and the United States and about the way Canada reacted to the events of September 11. I also want to talk to you about what can be done to ensure the vitality of Canadian industries.

Before September 11, the Canadian economy had started to slow down like in the United States. However, our economic fundamentals were strong.

[English]

Economic forecasters have called for a contraction of the U.S. economy in the last half of 2001, and recovery in 2002—that seems to be the consensus—is expected to be slow. For Canada, forecasts are not as clear-cut. The Minister of Finance, as we all know, will shortly provide the government's outlook.

By late summer, Canadian and American stock markets were down almost a third from their peak. Initially stock markets were down sharply following the attack but have recovered most of their lost ground. Of course, yesterday we saw another response in the marketplace to the events as they unfold.

Canadian industry has expressed concern regarding the situation at the Canada-U.S. border, and indeed, virtually every member of this committee has expressed, as you have, Madam Chairman, concern about the smooth operation of our border.

Concerns about border congestion have been rising for a number of years in concert with the growing volume of trade. Two-way trade grew from $189 billion in 1991 to $563 billion in 2000.

The U.S. is now at alert level one. Initially, as a consequence, there were some substantial delays, which have been reduced as the Americans added further resources. Waiting times at most border crossings into the U.S. are similar to pre-September 11 levels, but there are spikes. The U.S. has developed additional resources for inspection.

• 0840

Commercial traffic to the U.S. is almost at pre-September 11 levels. Passenger traffic, it must be said, is down 35%. The question is whether delays will increase again as volumes return to more typical levels. There's no question that one of the reasons the wait times are near normal is that volumes have been reduced by nearly a third.

Ensuring that the border does not act as an impediment to trade and investment is a government priority, and in that regard, all regions of Canada are interested, because all regions of Canada are affected. The chair of this committee has written to me to voice your concerns about problems with congestion at the border and to my colleague, the Honourable Martin Cauchon, who I know has been in touch with you and with other members of this committee, sometimes on a daily basis.

As we work with the United States on necessary new security measures, we must also take the opportunity to implement new means to facilitate trade. In other words, we have to acknowledge that a problem at our border existed prior to September 11. The problem was already there, one that many members of Parliament had raised for some sustained and considerable period of time.

When one considers that the total level of two-way trade between Canada and the United States has increased dramatically over the last ten years and that much of the infrastructure and systems put in place were built for another time, another era, business all across this country, indeed workers all across this country, are looking for a clear signal that the border problem will be addressed in a substantial way and that the fix will address not just the problems that arise in terms of extra security after September 11, but the more fundamental issues of an efficient, free-flowing Canada-U.S. border.

[Translation]

The government of Canada took the necessary steps to ensure the flow of goods at our borders. The Premier met with President Bush to discuss the situation. My colleague the honourable John Manley also met Tom Ridge, the director of internal security.

Before September 11, the government had already taken important measures in order to put into place a tax system conducive to economic growth and to the enhancement of our standard of living.

[English]

The important tax reductions announced by my colleague, the Honourable Paul Martin, along with other fiscal and adjustment measures announced after September 11, such as infrastructure announcements and the $160-million assistance package to the airline industry, will play an important role in the medium-term economic recovery. There has also been a 90-day fixed backstop insurance for airlines and airports, and of course, a few days ago, a further $75-million loan guarantee to Canada 3000. Indeed, there may well be other airline carriers that will come forward to seek some measure of assistance from the Government of Canada; we've acknowledged that.

In addition, since September 11 the Bank of Canada has lowered its key policy interest rates by 125 basis points, for a total reduction of 300 basis points since the beginning of the year. This brings interest rates to their lowest level since 1961—40 years. These cuts are intended to stimulate the economy by boosting consumer and business confidence. There's no question that there hasn't been for a very long time, and may not be again for some time to come, a better moment to take advantage of very favourable interest rates in Canada.

Since September 11, the government has announced new anti-terrorism measures totalling $290 million, which brings our total new investment in policing and security and intelligence to $1.8 billion since the 2000 budget.

• 0845

These measures include:

[Translation]

an anti-terrorism act, Bill C-36; freezing of terrorist assets in Canadian banks; increased security at airports, borders and ports of entry.

[English]

In addition, the CCRA is to expedite the sharing of information with the United States Customs Service, and of course, the Prime Minister has created the cabinet ad hoc committee on security.

[Translation]

The three industries the most directly affected by the events of September 11 are the airline industry, the aerospace industry and the tourism industry. Before September 11, the airline industry was already having difficulties.

[English]

The industry expects revenue losses across Canada in the order of 20% to 25% through year-end, with only modest improvement in 2002. Increased costs will be incurred for airport security, insurance, and airport expenses. The government, as I said, provided Canada 3000 with $75 million in loan guarantees. In addition to Canada 3000, others who have a solid business plan will present their request, and government will consider them as appropriate on their merits.

Job cuts nevertheless are expected within the airline industry, and those cuts are going to affect every region of Canada. Major employment reductions in aerospace internationally have been announced and others are expected.

[Translation]

Boeing and Bombardier reduced their production and have announced the lay-off of 30,000 and 6,500 employees respectively. Those job reductions affect the provinces of Quebec and Ontario mainly.

[English]

Airbus is reducing production, which will affect some of its suppliers in Canada. Still, there may be some potential for increased business in defence industries, aircraft maintenance, and in sales of private aircraft.

Hotels, resorts, airlines, cruise ships, car rental firms, and entertainment have all been severely affected in all parts of this country. The Association of Canadian Travel Agents has estimated a 30% to 40% drop in business over the next three months. Ontario's tourism industry, which is the largest in the country, estimates a year-end impact of $100 million. Other regions will experience proportionate revenue losses.

There are some signs that travel is beginning to pick up again, but the weakness is expected to last into 2002, especially for long-haul travel and business associated with airlines—for example, car rentals and airport hotels.

Last month, shortly after the terrorist attacks, I met with my provincial and territorial counterparts responsible for tourism to talk about building a more effective partnership to support the continued growth of Canada's tourism industry. We need to remind ourselves that some 550,000 Canadians are engaged in this industry and that it generates revenues, sales, of some $54 billion a year. It is a significant part of Canada's economy, and if there's a canary in the economy to measure quickly and effectively the impact of a downturn, it is there in the tourism sector.

After consulting closely with colleagues across all the provincial governments, I am pleased to announce today that the Government of Canada will make available through the Canadian Tourism Commission, over and above our regular program, an additional $20 million for marketing to encourage Canadians to travel within Canada and to attract Americans, in particular from near-border states.

Automotive sales in the auto sector remain steady, due to incentives. Indeed, yesterday I met and chatted with Maureen Kempston Darkes, who told me that notwithstanding a not surprising dramatic plunge in sales in the days following September 11, because of the very aggressive incentive package put forward by each of the suppliers and a very aggressive marketing campaign, and of course, a very attractive financing package as well, in fact the month of October has been a record month for sales in the history of the industry. This was for me surprising but very good news.

• 0850

I think it should indicate to us all, as difficult as the challenges are and as difficult as the circumstances are, that the appropriate response at every level is not to be carried along by the current of events but seek to direct the current.

The auto industry is to be acknowledged and congratulated for their aggressive response and for the quite remarkable result they have achieved by taking on and challenging the circumstances as they found them.

The industry produced a record 3 million vehicles in 1999 and 2000. Production in 2001 was expected to return to 1998 levels. Post-September 11 forecasts called for the production of 2.5 million vehicles. Possibly, and very likely, the third highest year ever will be produced this year.

The global economic slowdown has already led to reduced energy demand. The sharp decline in air travel since September 11 has further cut into the demand. The projected drop in global demand for oil is one million barrels per day. As a consequence, crude oil prices have dropped by more than 20% since September 11. Savings are being passed on to consumers that could provide some much needed stimulus to household spending and shore up business finances.

Increased military activities and a widening of the conflict, if that occurs, could lead to speculative price hikes. We can expect global oil markets will remain volatile.

Over the long term, the U.S. emphasis on security of energy supply will be reinforced, increasing their desire to secure Canadian energy supplies. This could lead to new investment in the oil sands and northern gas pipeline infrastructure.

The events of September 11 further damaged an already weakened manufacturing sector in Canada and in the United States. As of September, employment in the Canadian manufacturing sector was down by 44,000 jobs this year. It does not include the fallout from the events of September 11.

Provided we can restore confidence—and I think we're moving rapidly in that direction with respect to our border—the biggest concern for most manufacturers and those in retail trade is the extent to which recent events deepen. It could extend the slowdown already underway. It's worth mentioning again that border delays are a serious concern for virtually all industries, not just the obvious cases such as the auto industry.

The direct exposure of Canadian financial institutions is limited. OSFI has identified a need to monitor lending to firms in vulnerable sectors.

The Business Development Bank of Canada, I'm pleased to say, is offering qualified customers, especially those involved in export, wholesale, transportation, and tourism, the option of postponing principal payments for up to four months. I should say there has already been a very positive response from the private sector to the initiative to allow a deferral of up to four months on principal payments.

In the information communications technology sector, there was an immediate impact following the attacks as networks became overloaded. The attacks have raised concerns about security and calls for stricter control on access and use of communications systems. A potential upside to the tragedy for this sector is a shift to communication technologies, such as video conferencing.

I have a brief overview on regional impact, if I may.

The immediate impact in Atlantic Canada, as in the rest of the country, has been most strongly felt in the airlines and in the tourism sector. However, the impact has been somewhat mitigated by the fact that the peak tourism season in Atlantic Canada had already ended.

[Translation]

The province of Quebec has been hit by lay-offs at Air Canada, Air Transat and in the aerospace industry. There was also a drop in tourism activity.

[English]

In Ontario, the most notable direct impacts are in the air carrier and aerospace sectors, as well as auto. Given its high dependence on trade with the United States, and in particular the importance of the auto sector, Ontario is quite sensitive to a prolonged U.S. slowdown. This dependence is particularly evident in the southwest and south-central areas of the province.

• 0855

In western Canada, the region will be affected by the layoffs at Air Canada and in the aerospace industry. Tourism traffic is down in western Canada significantly. The B.C. forestry sector had already been hurt, as we know, by the softwood lumber dispute and by the general weakening of demand.

In the oil patch, the recent drop in oil prices could affect investment plans and will certainly cut into government revenues. We're seeing it already. Over the long term, however, I think it must be said that this sector is likely to benefit from increased interest in the United States for gaining a secure supply of energy within North America. I believe the policy imperative will have positive impacts, both in western Canada and with respect to the east coast offshore. We hope it will with respect to natural gas production in Canada's north as well.

Integration of the North American economy on a north-south basis has resulted in a $1.9 billion-a-day, two-way flow across our border. The rapid growth in two-way trade has put pressure on people, the practices, and the infrastructure at the border. Canada and the U.S. have been working together to resolve these issues. The work we've done must now be accelerated. With the widespread adoption of a just-in-time inventory management by most industries, including the agrifood industry, delays at the border can have serious repercussions, including increased costs.

September 11, I repeat, did not create the problems at the border. Responding to new security imperatives that flow from these tragic events will require a fresh look at all of the solutions available.

[Translation]

The government is determined to find innovative solutions that will satisfy our security requirements and promote trade between Canada and the United States.

The events of September 11 are having a direct impact on some industries but all of them will be affected by a general slowdown. The border issue is one of the priorities of our government. We must continue to support the development of an innovative Canadian economy.

[English]

Madam Chairman, in conclusion, the events of September 11 have pointed out to us the challenges we have in maintaining a trading relationship with the United States, which is very much the lifeblood of this country.

Our trade over the last decade, as a result of the free trade deal, NAFTA, has increased dramatically. In fact, overall, it's about three-fold. This is a huge number. Our problems in securing easy and free-flowing access of goods, services, and people have been there for some time.

The events at the World Trade Centre have exacerbated those problems. The role and challenge of government is to address border issues to bring about a permanent fix to ensure a safe and effective border and to ensure a safe and effective perimeter.

Thank you, Madam Chairman.

The Chair: Thank you very much, Minister.

We have a number of members who would like to ask questions. I'd like to remind members that the minister will be with us until about 9:50. Then he does have another meeting.

I'm going to begin with Mr. Penson.

Mr. Charlie Penson (Peace River, Canadian Alliance): Thank you, Madam Chair. Welcome, Minister, to the committee this morning, as well as to your officials who are here.

I welcome the fact that the committee is going to hold hearings to discuss the importance of post-September 11 on the economy and how it affects Canadian businesses and ordinary Canadians. It's an opportunity for Canadian businesses and industry to come before the committee and tell us their priorities.

I would suggest, though, Mr. Minister, that prior to September 11, the economy was already faltering. Even at that time, industry was telling us their priority was to get the fundamentals right, to try to get tax levels down, and to try to improve the competitive position of Canadian businesses by attracting investment.

I would suggest to you, even at that time, you were offside in terms of your approach to priorities. You were pushing the idea of subsidies to businesses, grants to TPC, and a broadband innovation agenda. There was really a lack of enthusiasm for your pet projects.

• 0900

After September 11, Mr. Minister, I suggest you have been strangely silent on many of these issues. I'm happy the department has given you the briefings they have to get you up to speed on the issues you've brought forward today. It was a good presentation, and I'm happy to see that.

I have to say, you still seem to be going down that road of needing a lot of government money for projects, such as the innovation agenda and broadband, which nobody seems to support across this country, at a time when we need money to secure our borders to satisfy the U.S. of their security concerns, as well as our own; at a time when Canadian business priorities are clearly to get a new border protocol in place, to protect the kind of business you talked about a few moments ago.

Ordinary Canadians understand very clearly—maybe more clearly than you do—how not having access to the U.S. border might affect their standard of living, if we don't satisfy the border concerns of the U.S., in terms of this perimeter issue. I've asked you questions in the House and others have asked you questions. It's hard to get you to your feet on this issue.

I know you're busy with other campaigns you have going, but it seems to me you need to abandon these misguided policies you are putting forward and concentrate on putting your shoulder to the wheel of securing Canadian access to the U.S. economy.

I ask you today to make a commitment to Canadians to stand down your leadership campaign. Don't focus on the tunnels, the infrastructure, and the bridges. They want border security; they want access to the U.S. market. Stand down your campaign and do what the Minister of Industry should do in this country.

Mr. Brian Tobin: Mr. Penson, one of the wonderful things about having this televised—and I hope it is being televised—is that when somebody makes the kind of transparently shallow and partisan speech you just made, it's evident to Canadians precisely what your agenda is. Your agenda is not the economy of Canada, it's not the security of our borders, it's not the future of this country—

Mr. Charlie Penson: But I'm not running a leadership campaign.

Mr. Brian Tobin: I politely listened to you. That's very clear. Your party is at 7% in the polls; you're barely running for anything at this stage.

I say to you in all honesty that I don't think Canadians, at this stage in the game, are much impressed by that kind of a scattergun, shotgun approach, hoping that something somewhere will stick. The fact of the matter is when you dismiss innovation, as you just have on behalf of your party—so let it be said this is the official position of the Alliance Party—perhaps you should take the time, pause—

Mr. Charlie Penson: What about broadband?

Mr. Brian Tobin: Let me go through all your points. Let's start with your first one. When you dismiss innovation—you raised it—let me tell you what you're dismissing. You're dismissing all of the measures and investments over the last decade taken by this government since 1993 to reinvest in our universities, our centres of excellence, science and technology, and research and development; to provide scholarships to bright young women and men; to provide support for post-graduate studies; to provide work and support for doctoral students; to support the development and innovation of new technologies and new knowledge that's commercialized to bring wealth to Canada.

You dismiss TPC, but let me take one TPC loan that was made—and by the way, not in my time. This program was around long before I came. I'd like to take credit for it but I can't. All of these programs you've dismissed I inherited from my predecessor, John Manley, and from the government that's been in power since 1993—every one of them. I didn't invent one new program, Mr. Penson, not one.

Let's take TCP. TCP gave a repayable loan to a small company that had an idea about something called the BlackBerry. It is one of the most successful innovations that has gone around the world, brought huge revenues back to Canada, and created thousands of new jobs in this country.

Now you've just told us that if you had been in a position to make the call with respect to that small investment of a repayable loan—because there are no grants—

Mr. Charlie Penson: Repayable contribution.

Mr. Brian Tobin: —when this company needed that seed capital to grow, take its idea around the world, and turn it into the worldwide success it's become, you, Charlie Penson, would have said no.

Well, I'll tell you, we think—

Mr. Charlie Penson: I'll tell you what I will say—

Mr. Brian Tobin: —that a little bit more imagination, a little bit more balance is required in the approach to public policy.

You raised a second question, which—

Mr. Charlie Penson: I'll speak for myself. I want to ask—

The Chair: Mr. Penson, you're going to have to wait because your time is up.

Mr. Brian Tobin: You've had your speech and I didn't interrupt you. If you can't take the heat, you should get out of the committee room. You really should.

• 0905

On the second point, broadband, you've just stood up and announced, on behalf of the Canadian Alliance—let it be said and let it be clear, and this is the declaration of the Canadian Alliance—

Mr. Charlie Penson: Well, get to it then.

Mr. Brian Tobin: —that rural and northern Canadians do not need computers—

A voice: Oh, give me a break. He's from northern Canada.

Mr. Brian Tobin: —and they don't need effective Internet access. You've just said it's a waste of time and money. We've had a private sector task force, and every provincial government, including the government of your home province—

Mr. Charlie Penson: Let me respond to that.

Mr. Brian Tobin: No, you asked the question.

Mr. Charlie Penson: I represent—

The Chair: Okay, order.

Mr. Brian Tobin: You asked the questions, I'm going to respond.

Mr. Charlie Penson: I represent a rural—

The Chair: Order here, for just a second.

Mr. Brian Tobin: Mr. Penson, I didn't interrupt you.

The Chair: Mr. Penson, you had four minutes to ask questions—

Mr. Charlie Penson: Yes, I know.

The Chair: —the minister was entitled and you repeatedly interrupted him.

Mr. Charlie Penson: But I didn't take four minutes, so I have another question.

The Chair: You did take four minutes.

Mr. Charlie Penson: No, I didn't, Madam Chair.

The Chair: No. I'm sorry, we're going to move on.

Mr. Brian Tobin: Mr. Penson—

Mr. Charlie Penson: Mr. Minister, I represent a rural northern riding—

Mr. Brian Tobin: —I didn't interrupt you.

Mr. Charlie Penson: Their priorities are not here today; their priorities are trying to get access to the U.S. border assured.

Mr. Brian Tobin: Your riding doesn't want to be on the Internet. I hear you.

Mr. Charlie Penson: We have Internet.

Mr. Brian Tobin: We'll put it on the list farther down.

Mr. Charlie Penson: We don't have horses and telegraph there any more, Mr. Minister.

The Chair: Order. We're going to move on to the next questioner.

Mr. Brian Tobin: Don't worry, it won't be first.

The Chair: Mr. St. Denis, please.

Mr. Charlie Penson: We had it years ago. You're so far behind, you think you're ahead.

The Chair: Turn off Mr. Penson's mike.

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

Thank you, Mr. Minister, for being here. I'll try to get past the unfortunate opening questions by my colleague across the way.

You mentioned the BlackBerry. In fact, news reports indicate that at ground zero in New York it was the only means of communication available to rescue workers when a number of the cell telephone towers were knocked out. So I think your comments on the importance of not only TPC but federal involvement in developing industry in Canada are very appropriate.

Mr. Brian Tobin: May I just add briefly that every member of the U.S. Congress now has a BlackBerry. Mr. Penson will get his own one of these days. I'm going to shop for one for Christmas, just for him.

Mr. Brent St. Denis: In my few moments, we can look at the situation we're facing right now—and we should—both short term and long term. In the short term, I certainly applaud the efforts of our Prime Minister and cabinet, in terms of the response we've made under very difficult circumstances. But we will, in due course, be facing the long term.

I would like to give you the opportunity, if you would, to talk about the broadband initiative that I think you have championed. I have a rural riding in northern Ontario. I agree with you that indeed rural Canada and northern Canada deserve to be part of the 21st century. So I'm wondering if you could speak for a moment about the long term. Maybe you could comment also on the border, in the long term.

I will conclude my questioning by saying I think the announcement—and I see Mr. Watson at the back there—that the CTC will get $20 million extra will help ridings like my own rural riding in northern Ontario.

Thank you, Madam Chair.

Mr. Brian Tobin: I'd be happy to comment on broadband. The reality is that in the world we live in today, if you are living in a community that does not have access to high-speed Internet service, you suffer a significant disadvantage, in terms of the availability of health care, telemedicine, education facilities and access, and distance education. The capacity to attract investments to your community to participate in a knowledge-based economy is also severely limited.

Aboriginal communities are those least well served in this country. They are the communities we should go to first, to provide an opportunity to be connected to the world, as represented by all of the technology available and all of the opportunity available through the Internet. Matthew Coon Come said it very well when he spoke of aboriginal Canadians: “We missed the Industrial Revolution; we don't intend to miss this revolution too.”

When you look at the cost of providing broadband, I want to put this in perspective because people tend to want to set up straw men, as Mr. Penson just did, and then beat them to death. We spend in this country in excess of $10 billion in unemployment insurance, each and every year, sustaining people where they live. We use the unemployment insurance system to assist them because they haven't been able to work all year long, or they've had trouble finding work in a given period of time.

• 0910

We spend billions more through other levels of government, sustaining people who are not able to realize their full potential. We're talking about a one-time expenditure in the order of several hundred million dollars a year, averaged over four years. That's measured against $12 billion a year in social support of one kind or another.

When completed, it will connect every single Canadian to their governments, educational institutions, and medical institutions; to the opportunities for e-commerce, economic opportunity, leisure, and education. Measured against the total budget of government or our total social budget this is not a large investment, but the consequences for the communities brought on line are huge.

I would remind us all that the recommendation to proceed with this measure came from a private sector task force. This is not something that was dreamed up in government. It's not something, Mr. Penson, I dreamed up. It was part of the Government of Canada's plan going back to the days when I was still a provincial premier. But it is a policy I am happy to champion and promote at this time, because I think it is a nation-building public policy exercise.

There was a time when we built bands of steel across this country—some would argue to parts of this country when there wasn't an economic case to do so. But in building those bands of steel from west to east, we built a country. Would we do less in an age when technology defines our capacity for nation building? Perhaps you would; this government would not.

The Chair: Thank you very much.

Mr. Brian Tobin: You can do two things at once, Mr. Penson. It is possible. Perhaps it's not something you're familiar with on that side of the chamber, but we manage to multi-task over here.

Thank you, Madam Chairman.

The Chair: I would appreciate if we could try to keep the questions and answers to those who are actually supposed to be asking the questions and giving the answers, as we move along.

Mr. Brian Tobin: It was asked by Mr. Penson and I'm not used to it—

The Chair: I understand that, Minister, but I would appreciate it if we could—

Mr. Brian Tobin: You're roughing me up.

The Chair: —all try to focus on the issues today.

[Translation]

Mr. Bergeron, please.

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

I welcome with great pleasure this first opportunity we have to exchange views formally since I have been nominated industry, science and technology critic for my party the Bloc québécois. I must admit that I am new on this committee, that it is the first time since I have been a member of the committee that the proceedings are being televised and that it is also the first time that I see the committee so lively. I hope there is no link between the fact that the meeting is televised and the fact that it is lively.

Minister, I think that there is absolutely no problem for a government, in this new economy, trying to favour innovation and technological conversion, especially for a country who has been lagging behind other G-7 members for many years on the research and development front. In that regard, I fully support the initiatives taken by the government in order to convert Canada to technology.

That being said, as you alluded earlier to the energy issue, I am surprised that this government who prides itself on having made technological innovation its priority has decided to phase out research on nuclear fusion in Canada, a decision that led to the termination of the largest energy research and development project in the province of Quebec, the tokamak of Varennes. I think there is some incoherence between the views expressed by the government and his concrete actions in the field.

However, as we are talking about energy, Minister, you have made a very eloquent presentation about the fact that there were already obvious signs of an economic slowdown before the events of September 11. I think that you also succeeded in highlighting the fact that the events of September 11 only increased the signs of an economic slowdown.

If we look objectively at the precise moment when those first signs of an economic slowdown started to show amongst indicators, we notice strangely enough that this followed in terms of weeks or months the sudden rise we witnessed in oil prices. Is there a direct or an indirect link? I think that there must be a direct link.

• 0915

Regarding the runaway oil prices, we felt that the government reacted with a certain apathy if not a certain inertia. Even though a Liberal Party committee recommended that the government intervened energetically in the matter of oil prices, the government just commissioned a study from the Conference Board on which many oil companies sit and which published last January a very lenient report on the issue of raising oil prices.

Minister, in your capacity of new office holder haven taken over from your predecessor who commissioned the study from the Conference Board, I would like to ask you if the government intends to do something more proactive so that fossil energy is more affordable for Canadian consumers knowing perfectly well that any rise in the price of oil for carriers has tremendous impacts as carriers will pass on the price increase to the producers who will necessarily pass it on to consumers, and that will contribute to a worsening of inflation and eventually to a slowdown in the economy.

M. Brian Tobin: Thank you very much for your comment or statement on Canada's innovation agenda.

[English]

Madam Chairman, with respect to energy prices, I first of all welcome my colleague's comments and his observation that indeed the price of gasoline or energy has an impact on consumer choices within the country. There's no question about that.

I think the broader question is whether or not I believe, or the government believes, at this time we should establish some kind of regulatory agency to set prices in Canada.

You made reference to the Conference Board report. The conclusion of the Conference Board report was that in fact the Conference Board did not recommend that kind of approach.

There have been many studies, as you know, across the country, most of which—almost all of which, with one or two exceptions—have come to the same conclusion. In fact, to my knowledge, today there is an agency in place in P.E.I.; there is a review mechanism in place in Newfoundland. Beyond that I don't believe—but I stand to be corrected—there are agencies that effectively set prices anywhere else in the country.

I note, for example, in the province of Quebec there's no agency that sets prices arbitrarily for gasoline, for home heating fuel, or for that matter for hydroelectricity. Nor, I think, would the government of Quebec accept that it wanted to be in a market environment where prices are set by the market.

I think notably of the tremendous exports of hydro power by Quebec into the United States, where Quebec would be an advocate for or supporter of the notion that the states of the United States should now establish—and let's take the case straight to home—agencies; and that states of the United States should arbitrarily establish—not based on market determinations but on whatever they thought was in their own best interests or politically popular at any given point in time—prices for hydro sales from Quebec into American states.

I would just say this to you. I understand the concern. But if you look at what's happened over the last period of time, we've seen a significant reduction in crude oil prices. We've seen a corresponding significant reduction in gasoline prices and the prices of other fuels.

I think we all welcome that. We all recognize—as you have said—this is positive for the consumer. I suppose the straight answer to you today is I'm not contemplating—nor do I believe the Minister of Natural Resources is contemplating—establishing some federal agency to set prices for gasoline or other fuels, or for that matter to establish prices for hydroelectricity.

The Chair: Thank you.

[Translation]

Mr. Stéphane Bergeron: I was not necessarily talking about—

[English]

The Chair: No, I'm sorry, Mr. Bergeron, we have to move on. We have a very short time for questions and answers this morning. If members are going to have three-and-a-half-minute or four-minute statements, that's fine, but I'm only going to have time for one answer before I move on.

May I remind members again why we're here today.

Mr. Bagnell.

Mr. Larry Bagnell (Yukon, Lib.): Thank you.

Mr. Minister, I just want to thank you for mentioning the gas pipeline might be accelerated in these circumstances, because that would be a huge project for us—the biggest project in northern history. Twenty billion dollars would be a huge impetus.

• 0920

Also, for people in the room who may not be aware—because I've been in lots of meetings they may not have been in—the support that, first of all, this committee, and the members and the chair of this committee, and you but also other ministers of the crown are putting on the border is really tremendous.

All sorts of activity is going on in various committees and meetings, and it's tremendous, because it is such an important issue at this time—maybe the biggest issue at this time. Everyone has come through tremendously on it, and there's great work being done.

The last thing I wanted to say—and you could comment on any of these things—was I was watching television last night, and it was embarrassing. I thought I had gotten into the dark ages when someone was talking once again about broadband. They'd think computers weren't necessary these days. They abandon the rural; they abandon the north. We really appreciate your championing us in the north. Rural Canada often feels left out. The north often feels disenfranchised. I know there will be other parties supporting you.

Obviously, the computer is today's economy. We really appreciate your support. Keep sticking up for rural Canada and the north.

Thank you.

Mr. Brian Tobin: Madam Chair, this gives me an opportunity to note—and I think it's important to note—that other jurisdictions, not just the federal government, are talking about high-speed broadband.

I met with Premier Lord of New Brunswick a few days ago. He told me it is one of the highest priorities of his government. He wants to know when the policy is coming forward. He wants to partner to achieve high-speed broadband in New Brunswick.

The Yukon—the constituency of my friend, Mr. Bagnell—has been one of the most progressive jurisdictions of Canada, and one of the most visionary, spending their own money in bringing high-speed broadband to northern residents. They too are looking for the partnership of the national government.

The Government of Alberta—that is a government, Mr. Penson, you may know something about—has also listed high-speed broadband as a priority and is spending money to achieve the outcome they have articulated in Alberta.

The new Government of British Columbia has listed high-speed broadband, and is prepared to spend money, and is looking for the partnership of the national government to achieve that objective.

If you go across this country, governments in every region and of every political stripe have come to the conclusion that getting Canada on-line, high-speed access—giving access to citizens where they live—is critical. I have trouble understanding why....

By the way, we had a meeting of ministers of science and technology in Quebec City not so long ago that I co-chaired with Pauline Marois, the Deputy Premier of Quebec. We had a unanimous declaration out of that meeting of every government of Canada—every province, of every political stripe—saying high-speed Internet access is one of the defining characteristics and part of the necessary infrastructure of a modern competitive economy.

We have to be more thoughtful, more balanced, frankly more intelligent in our comments before we set up these straw men and knock them down without thinking about the future of Canada. Our job is not just the next quarter or the next year, it's the next generation we're building a country for. The steps we take now determine how successful and how competitive we'll be later.

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

Ms. Desjarlais, please.

Mrs. Bev Desjarlais (Churchill, NDP): We have the blood sport on this side and the love-in on the other side. It's really quite an interesting morning.

Mr. Brian Tobin: Well, I'm going to send Mr. Penson a thank you card before this is all over.

Mrs. Bev Desjarlais: It has just been great, yes.

In relation to security at the border and those who feel we should have an overall border around Canada and the U.S., and forget about any sort of customs or extra stumbling blocks at the border, what are your thoughts? Or what's the government's position as to whether we're going to have a northern security perimeter?

Mr. Brian Tobin: Thank you very much for your question. It is, I think, an extremely helpful question because it gives me an opportunity to clear up what I think has been some confusion on this whole issue of border versus perimeter.

There were questions arising from the official opposition in the House of Commons about whether or not it would be possible to have a secure perimeter and therefore no need to have a border.

I think it needs to be made very clear that nobody I know of—and I've talked with Ambassador Cellucci, for example, about this, and I've known the ambassador during my years as premier, when he was governor—is talking about eliminating the border. Nobody in the United States would ever give up their border, let alone advocate eliminating the border. All that is being said is that in addition to having a porous, effective, fluid, and secure border, can we also take additional steps to secure our common or joint perimeter, to the extent we have boundaries?

• 0925

We're already doing that in a variety of ways. I'll ask you to reflect upon the pre-clearance we have with aircraft. You can be cleared in Canada prior to arrival in the United States. You can be cleared in the United States prior to arrival in Canada.

There's a discussion today, for example, with respect to the movement of containers that might arrive by ship from Canada, about whether or not they can be pre-cleared for the United States, or, if they arrive in the United States, whether they can be pre-cleared for Canada.

So when we talk about a safe perimeter, those are the kinds of practical considerations that are being referred to. It's not a matter of a safe border or a safe perimeter. We need both. It's in our economic interest to have both.

Mrs. Bev Desjarlais: I'm certainly glad to hear that, because there has been a lot of concern raised, especially along the border communities in Ontario and somewhat in New Brunswick as well, because of the increased crime. If that border is seen as disappearing, let's say, in the Windsor area, the crime is ten times greater on the Detroit side than it is on the Canada side. That community doesn't want their community at risk.

Mr. Brian Tobin: The only group I've heard advocating that kind of approach—let's have a secure perimeter and get rid of the border—has been some members of the official opposition. It is not the policy of the government. And by the way, it's not the policy of the American government. Anybody who believes the American government would, for a moment, contemplate giving up their border doesn't understand the American government very well.

We all agree that if we can secure more effectively than we have in the past the way in which goods, services, or people come into our respective countries, and if we have confidence in each other's measures, then we can create a more confident environment for our citizens, for our business community, and for commerce.

Mrs. Bev Desjarlais: I want to comment on the importance of innovation and connecting all parts of the country. Certainly, it's important. From someone who has a largely remote rural area, a number of aboriginal communities, access is important.

You also indicated, and Matthew Coon Come himself said, that it's important we have those opportunities.

Aboriginal communities have suffered. With the failure of the government over the years to put enough resources in place for all communities in Canada, but specifically aboriginal communities, for housing and water and sewer infrastructure, they're at a state now where, quite frankly, it's at crisis levels. Somehow the importance of having access to the Internet is not quite as important as having a roof over your head and a safe water supply.

So I think at this time, if there's going to be a priority in question, it has to be ensuring that people have access to safe water and housing and the social services that are necessary. Although as a party, we certainly support the research and technology and the need for innovation, the priority now, with all due respect, is going to be to make sure the government does something with infrastructure in this country.

Mr. Brian Tobin: Let me say that I share that priority. Having a roof over your head, having an opportunity for education, for good-quality health—all of these things are obviously first priorities. One of the priorities, surely, for our aboriginal people has to be to have the means to rise above the circumstance of being dependent upon governance. We need, too, to share the opportunity to be successful commercially. All of the aboriginal leaders I've talked to want the community to have a greater degree of capacity to serve themselves, to govern themselves and to be wealth creators. Aboriginal communities want to participate in the economy, not to be wards of the economy but to be contributors to the economy and to be masters in their own houses. I think we can all subscribe to that.

The Chair: Mr. Volpe, please.

[Translation]

Mr. Joseph Volpe (Eglinton—Lawrence, Lib.): Thank you, Madam Chair.

I have no presentation to make because you were meant to do it but I have questions.

First, I wish to congratulate you on the strategy for the future.

[English]

If you'll forgive me for bringing us back to what I thought our topic would be, and that is, the impact of September 11 on the Canadian economy, I'm going to ask the indulgence of all my colleagues and engage in parochialism for a moment.

• 0930

The last time we had a crisis the Golden Horseshoe soon became called Canada's Rust Belt. Part of it was a result of the fact that Americans began to make investment decisions that did not include the area around Toronto as a locus for either investment or for seeking suppliers. Many of our factories closed up and all of the technology moved to upstate New York. Upstate New York witnessed an economic renaissance, as did parts of Michigan and Ohio, and we languished in a recession for five or six years.

The biggest impact of September 11 has been a decline in truck traffic transportation.

You highlighted in your presentation that the waiting periods are almost at normal, thanks in part to a 30% reduction in traffic. I know you have a series of initiatives. You've given us an indication of so many good important ones that are aiming for the long term.

Especially for me, in my parochial worst, I'm going to ask you about the short term. What are we doing in terms of ensuring that the flow of traffic across the borders—Windsor, Fort Erie, Niagara Falls, primarily out in the western part of the province, elsewhere as well—will assuage the requirements of industry on both sides of the border to receive their products in the appropriate time required so as not to discourage investment 6, 8, and 12 months down the road?

Mr. Brian Tobin: Madam Chairman, I want to thank the member for his question, because I think his question is the heart of the matter here today. It is about maintaining confidence not just in terms of our current economic activity but also in terms of future investment decisions. That is the overriding preoccupation of the Department of Industry.

To keep the record straight, and perhaps I have not been clear enough, when I referred to a 35% reduction in traffic, that is a 35% reduction in the number of people crossing the border. Actual commercial traffic, and I think this is our latest number, is down somewhere in the order of 5%.

So by and large, when one considers the state of play in the economy and the contraction we've all acknowledged and that we've all been talking about, that traffic that is normally moving across the border is back moving again. One of the reasons it is able to move, in terms of delays, in the timeframe roughly equal to what we had prior to September 11, is that the number of visitors crossing the border, the people side of the equation, is down by about one-third. In fact, we've had quite a good recovery in the level of commercial goods crossing the border back and forth.

With respect to what we are doing, clearly, at every level ministers responsible, Minister Cauchon in particular, have been meeting with their counterparts in the United States. They have established a protocol that is understood on both sides of the border and they have sought to establish confidence in each other's additional measures.

As you know, both people and now technology are going to be applied; significant investments are being made. All totalled, at this stage of the game Canada has committed in excess of $200 million to this issue. All of that technological investment cannot be put in place overnight, as I know you appreciate, but the commitment is there.

The appropriate programs and technology are going to be utilized both at airports and at borders. Airports are as much a part of the free flow of goods, people, and services between Canada and the United States. We have to recognize that. Our decision to provide assistance to the airline industry was a recognition of that. Our decision, as a cabinet, to provide $75 million of loan guarantees to Canada 3000 to ensure continued competition in Canada was a recognition of that.

• 0935

Beyond that is this broader issue of what we do in the long term to recognize the problem that existed prior to September 11. As you know, there's a working committee chaired on the Canadian side by Deputy Prime Minister Herb Gray, together with David Collenette, the Minister of Transport, and representatives of the Government of Ontario, the state Government of Michigan, and also the Government of the United States. For example, there's the issue of the Ambassador Bridge in Windsor. That is a working group we want to ramp up and see work more quickly with greater efficiency in a manner that reflects the urgency of the situation.

In short, the Government of Canada, Mr. Volpe, will take any and every measure necessary to continue to flow $1.9 billion worth of two-way trade over that border with as much efficiency as possible in recognition that 87% of everything we export is going to the United States.

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

Mr. Strahl, please.

Mr. Chuck Strahl (Fraser Valley, PC/DR): Thank you, Mr. Minister, for coming, and I thank you for that presentation. It covered quite a bit. You covered the state of the economy, the status of security, the future of our social programs. There was all kinds of repartee going back and forth here. It almost comes across like a poor man's finance minister. I think you did well, really.

Mr. Brian Tobin: Thank you very much. I'll take that as a compliment, Mr. Strahl.

Mr. Chuck Strahl: I have a few questions. The first question would be, given that industry is affected by this, especially after what happened on September 11, why was the minister excluded from this special cabinet committee on security? It does seem to me that back in C.D. Howe's day it was run by the Minister of Industry because of the impact this sort of war footing has on all Canadians. That would be the first question.

The second one would be when you're choosing priorities, Mr. Minister, there all these priorities you talked about—the housing for natives, broadband access, the border access, the infrastructure program—and if you replay the tape later you'll find out every one of them is a priority for you. But you really can't have that many priorities. All of them are important. All of them hopefully will take place. But when you have priorities, especially in a shrinking budgetary envelope, you have to pick your poison, pick the thing you think is most important.

The question I think you're hearing here this morning is not whether broadband access is important, because it is important in the long-term economic prospects for Canada, but is it the most important? I would argue that right now perhaps border access is more important. That's why Premier Harris and Premier Landry and Premier Campbell and Premier Lord all love broadband access. But they're talking mostly about access through the American borders. That's their priority, just like 74% of the CEOs in the headlines yesterday said this is extremely important; this is the priority right now.

I would hope that as you're picking the priorities—and I know we can do more than one thing at once—you would consider that the most important thing is, as you said in the paper yesterday, infrastructure for the border crossings, dealing with perimeter security issues. These are the things that are seizing people. You can be from the Peace River and you can still say, if I can't sell my wheat, if I can't sell my oil and gas, if I can't get through the border, if I can't get my lumber in there, then broadband is nice, but I won't have enough to buy the electricity to plug my computer in. So border access is a priority, and I wonder if that isn't your priority as well.

My last question is, given that all these industry things are coming up in a flurry, and I think there is going to be lots of activity in your department, I would like the minister to comment on how he ensures there isn't a conflict of interest between, for example, the article that said 20 guests came to a special dinner and promised $25,000 a year to the minister's election campaign for the leadership—

The Chair: Mr. Strahl.

Mr. Chuck Strahl: —how he makes sure that doesn't conflict with his job as the Minister of Industry.

The Chair: Mr. Strahl, that's not relevant.

Mr. Brian Tobin: Madam Chair, once again I'm very thankful that we are doing this before the television cameras because frankly it is a no-brainer. Again, it is another example that it must be part of the culture that you carried from the Alliance Party when you left there for the Democratic Conservative Coalition.

An hon. member: It's the PC/DR.

Mr. Brian Tobin: Sorry. What's it called? One of the members is attempting to tell me the acronym.

• 0940

Frankly, to ask the question whether border security—moving Canadian goods and services across to the United States, 87% of our exports—is the first priority, as opposed to a list of 1,000 other things you could name...? This does not take a lot of thinking. I don't know how early you got up this morning to dream up this question, but the answer is, of course, securing access to Canada's market has to be everybody's first priority. To keep the economic engine of Canada going is our first priority.

Mr. Chuck Strahl: Thank you.

Mr. Brian Tobin: But now if you extrapolate from this, having come to this conclusion, this insight, that having Canadians work is important, that therefore there cannot be other things we can do as a country, it is a point of view. It is perfectly legitimate, I suppose, for the Conservative Democratic Coalition to take the point of view that we ought not to do anything else but deal with border issues. And I think I'll go through your list: support for aboriginal people and housing is not important; it can't be done if we're doing border security—

Mr. Chuck Strahl: I didn't say that, though. I just said I want to ensure that was your priority.

Mr. Brian Tobin: I'm sorry. Let me cede some of my time to ask you which of the list you mentioned you would cancel now.

Mr. Chuck Strahl: I didn't say “cancel”. I said I wanted to make sure access to the borders was a priority, and I thank the minister for confirming that it is.

Mr. Brian Tobin: I want to thank you for confirming that you're acknowledging that even as we pursue the most important priority for Canada—it's my most important priority—that is the border, we can also talk about and pursue these other things of benefit to Canada. Do you agree with that?

Mr. Chuck Strahl: I just asked the minister not to have five priorities, but if that's his priority then let's work on the other things as well.

Mr. Brian Tobin: I want to ask you for the record because you're here to answer too on behalf of your party: do you agree we can have other priorities?

Mr. Chuck Strahl: Yes. We have the priorities straight. I think you—

Mr. Brian Tobin: Let the record show that there are other priorities within this new party.

The Chair: Thank you very much.

We're going to move on to Ms. Torsney, and I'm going to remind members that we have very little time left. The minister does have to leave about 9:50 a.m.

Ms. Torsney, please.

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

Thankfully I've seen the minister walk and chew gum at the same time, so I'm confident you can deal with the short-term and the long-term goals.

One of the things I am concerned about is in fact the border. Delays, I understand from many businesses in my riding, are in fact longer, but the National Guard is helping on the U.S. side to move the commercial traffic along. I understand they're supposed to be leaving during this week and that there's a provision for more guards to be put on the U.S. border. But I'm hoping that you, Minister, will be speaking to the governors along the border, in New York and Michigan, to make sure there are interim measures either to continue the National Guard or to make sure there are the appropriate staffing levels on the U.S. side. It is a huge concern for my riding and I know for many other members around this table.

It seems to me that one of the things we have as an opportunity is to demonstrate some high-tech equipment and some other ways of screening trucks and containers on ships and rail, and I'm wondering where some of that technology is. Our Canadian companies have been charged up to deliver some of that technology, particularly through TPC grants or whatever else—they're not grants, they're investments—to make sure we are putting in place the best technologies.

Also, companies that are doing business on both sides of the border have to make long-term decisions and they need to know where the opportunities are. And companies that are in Canada are trying to compete for global product mandates. They're trying to compete to be the next research site. There are other things that go into that basket besides the border, and certainly if the border is an irritant then that basket has to be enhanced. I'd like to know what is the coordination that goes on within cabinet?

The issues from my chamber of commerce are things like access to doctors. It's an issue in my riding. Do you sit down with your counterparts? Are you working to make sure that all the rest of the infrastructure is there to enhance the opportunities for Canadian businesses or Canadian parts of the companies to compete vis-à-vis their American counterparts? They're ready and willing, but we know that perception sometimes can become reality in the U.S., and if they hear border, border, border, especially given some of the rhetoric in the House, people are going to be concerned that this isn't a place to do business or that they should invest in Tennessee. I think they would be absolutely making the wrong decision, and I want to know what is the coordination amongst cabinet on those things.

• 0945

Mr. Brian Tobin: First of all, the coordination is very close. Indeed, I go back to an earlier comment.

I made a presentation on the state of play of the Canadian economy before the security committee of cabinet a week ago. Ministers across departments are working very closely. This is the priority today for the cabinet of Canada. It will remain the priority for the cabinet of Canada, for the Government of Canada, and certainly for our caucus for some time to come.

I take your comment that, in the interest of seeking to score a political point or to achieve a headline, we make alarmist statements on either side of the House merely because we want to generate a lot of heat and light. Here I'm trying to be as balanced as I can be. It's our own constituents at the end of the day who may be harmed.

The Chair: Absolutely.

Mr. Brian Tobin: Frankly, I think the kind of non-partisanship, or limited partisanship, we've seen south of the border has been a better model on how to respond in a time of crisis than the kind of behaviour we're seeing today from members on the opposite side of the House.

We should remember always that the United States is the largest economic machine or colossus in the history of mankind. Twenty-five percent of everything the United States exports comes to Canada. The interest in having the border work effectively is not a one-sided story. The United States has an interest, a great interest, as well.

I talked recently with Ambassador Cellucci. I don't want to put words in his mouth. I was very encouraged by his understanding of the issues, certainly as a former governor on the east coast, and his commitment to ensuring the border not only became at least as efficient as it ever was, but his commitment, on behalf of his government, to ensuring the border, at the end of the day, becomes even more efficient than it has ever been. It means the introduction of technologies.

Are we looking at technology? The answer is yes. Of course, the better minister to come and respond in some detail about the measures being taken is Minister Cauchon.

We do know that the NEXUS program has been suspended for a period as part of the heightened security apparatus. NEXUS and the next generation of technologies are certainly where we have to go to be able to freely flow and move traffic as effectively as possible across the border. It's why the notion of expanding perimeter measures, in my mind, is appropriate. We already have some in place.

We have to completely get rid of this idea anywhere and everywhere. If there's anyone who believes having a safe perimeter means having no border, it's simply not the case. It's not a proposal coming from the U.S. government. It's not a proposal coming from the Canadian government. It is one that has come from the opposition. It's not where we need to go.

Let's make the border safe, effective, fluid, and open. Let's jointly establish the greatest perimeter measures we can. It's in both of our interests. It's the route, indeed, we will go.

The Chair: Thank you.

Thank you very much, Ms. Torsney.

Mr. Minister, with your indulgence, I'm going to allow Mr. Rajotte a minute and then Mr. Speller a minute. Then you can respond.

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

First of all, I want to say I'm glad you have stated clearly today that border access is your number one priority. I'm very heartened by it. I wish you had recognized it earlier, but I am heartened by the statement.

Mr. Brian Tobin: I've said it many times. I'm glad you've listened today for the first time.

Mr. James Rajotte: I have a very quick question. Can you identify specifically what you have done to address industry concerns? For example, you mentioned the Prime Minister met with the President. You mentioned John Manley meeting with Tom Ridge. Have you met with your counterpart in the U.S.? Have you met with the Secretary of Commerce? If so, what were the results of those discussions?

Could you itemize specifically what you have done since September 11 to address industry concerns?

Mr. Brian Tobin: First of all, the Secretary of Commerce has met with my counterpart, or my colleague, Minister Pettigrew, on these matters. The Solicitor General has met with his counterpart. The Minister of Foreign Affairs has met with his counterpart. The Prime Minister has met with the President.

Mr. Charlie Penson: Have you ever met?

Mr. Brian Tobin: Charlie, I know you're desperate to score a point before you leave today.

Mr. Charlie Penson: No. I would expect that you would be there.

Mr. Brian Tobin: I appreciate the effort. I really do. I used to be on the opposition benches for a good many years.

Mr. Charlie Penson: You might be there again.

Mr. Brian Tobin: I got up a little earlier in the morning to work on my questions, I can assure you.

I met recently with the U.S. ambassador to discuss these border issues. I met with all of my colleagues within cabinet. I've participated in the meeting of the security committee of cabinet. We've taken all the measures within our portfolio responsibility.

• 0950

Quite frankly, other ministers have direct responsibility for security issues. Those ministers are fulfilling their obligations and are doing so in an excellent and effective manner.

The Chair: Thank you.

Mr. Speller, please.

Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.): Thank you, Mr. Minister. I want to thank you for taking a strong stand in terms of access to the American market.

I have the steel industry in my area. U.S. anti-dumping and countervail legislation is another way of closing down the border. Americans seem to put steel as a high priority in terms of their national priority.

What is the Government of Canada doing to make sure we have continued access for the steel industry? Have you met with the steel industry yet? Are you helping them in terms of gaining access to the American market?

Mr. Brian Tobin: The answer to your question is yes. I and other members of cabinet have very recently met with representatives of the Canadian steel industry. Indeed, I think we had five or six ministers at a meeting a few nights ago.

The Department of Finance, the Department of Trade, and the Department of Industry are working closely today, together with the Department of Foreign Affairs, to look at the impact of recent decisions and how the decisions have impacted the steel sector in Canada.

I am not at liberty to say more today. This is a matter before cabinet. It's a matter currently under discussion. I can tell you we are seized with the state of play with respect to the Canadian steel industry. We expect to identify within the days ahead measures that may be appropriate at this time to assist the industry in its attempt to secure good access to the American border and to protect itself from unreasonable attempts to penetrate this market in matters inconsistent with fair and free trade.

The Chair: Thank you.

Thank you very much, Mr. Speller.

Minister, we want to thank you for being here today. We do appreciate the fact that you have indeed highlighted that the priority is border access for industry in Canada.

I would like to reiterate the concerns raised by a number of members at this committee on the importance of ensuring that the border moves freely and that security at the border is enhanced to address a number of concerns.

I would appreciate as well if you would take Ms. Torsney's comments and make representation to the Government of Michigan. The border guard is scheduled to leave Detroit as of Thursday. There seems to be a lack of understanding. They're the only reason the commercial traffic is actually moving at the Detroit border. The car traffic, which is down 35% to 60% at the tunnel, is moving very slowly when you consider the fact that traffic is actually down.

I would urge you to continue to work with your colleagues in the United States and make the representations. We appreciate very much your being here today.

Mr. Brian Tobin: Thank you, Madam President.

May I say that we will monitor...and we do appreciate the work the committee is doing in giving an invitation to many sectors of the Canadian economy to come forward at this time, in a very timely fashion, to be heard on the state of play of their sector, and to give advice and make recommendations to government as to what we collectively ought to do to try to respond to the kinds of issues out there.

I congratulate you, and all members of the committee, for your initiative in this regard.

The Chair: Thank you very much, Minister.

We're going to recess for five minutes while we change witnesses. We're going to invite the automotive sector to the table.

We're adjourned for five minutes.

• 0953

• 1001

The Chair: We'll continue our hearing. I'm sorry, Mr. Volpe, you had a point of order?

Mr. Joseph Volpe: I have a point of order and a clarification, for all those interested.

Now that the room has been almost completely vacated by functionaries in the employ of Industry Canada and by the media—they've all returned to their posts—I think this is probably one of the most dynamic movements toward building confidence and assuring people that our sentries are back at the post.

The Chair: Well, Mr. Volpe, I want to assure you there are still representatives here from the Department of Industry listening to the meetings, and we are being televised, so I'm sure there are journalists watching from a distance.

That being said, we do have a very important sector of our economy before us right now, and that's the automobile sector. We're very pleased to welcome here today the Canadian Vehicle Manufacturers' Association, Mr. Mark Nantais, president; Mr. Doug Jure, special adviser for DaimlerChrysler Canada; and Mr. Michael Sheridan, manager of government relations, Ford Motor Company of Canada Limited.

From the Association of International Automobile Manufacturers of Canada, we have Mr. Robert Armstrong, president; Mr. Stephen Beatty, vice-president, corporate affairs, Toyota Canada Inc.; and Mr. Art Thomas, senior manager, corporate affairs, Honda Canada Inc.

From the Automotive Parts Manufacturers' Association, we're very pleased to welcome Mr. Gerald Fedchun, president.

I would propose you each have an opening statement and then we'll move to questions together. Without further ado, I'll turn it over to Mr. Mark Nantais.

Mr. Mark Nantais (President, Canadian Vehicle Manufacturers' Association): Thank you, Madam Chair, and thank you to the committee for the opportunity to appear here today.

I'll also say we're very pleased to be participating with other members of the auto sector today to form this panel.

For those of you who are not aware, the CVMA is the national industry association of Canada's largest auto makers. Our membership includes DaimlerChrysler Canada, Ford Motor Company of Canada, General Motors of Canada, the International Truck and Engine Corporation, and Volvo cars.

The purpose of these hearings is to assess the economic impact of the September 11 tragedy in the United States on sectors within our economy. As we are all aware, however, the terrorist assaults have deeply effected not only our economy, but more importantly our feeling of safety and security.

I think it's important to understand that the automotive industry has been completely rationalized in North American since 1965 with the signing of the Auto Pact. This rationalization allowed facilities in one country to produce vehicles to be sold in both countries, with parts and vehicles moving across the Canada-U.S. border relatively free of delays.

The industry was further integrated under the Canada-U.S. Free Trade Agreement in 1989, and then again under the North American Free Trade Agreement in 1994. Currently, roughly 25% or about $300 million of the $1.3 billion in daily—I emphasize daily—two-way trade between Canada and the United States is automotive products. This is a very important fact. For over 35 years the automotive industry in both countries has relied upon the unimpeded transportation of parts and finished vehicles across the border to sustain the industry in both countries.

Each of our member companies lost significant planned production in Canada as a direct result of September 11, and each of our member companies has also subsequently reduced vehicle production in light of decreased sales in the United States.

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Production in Canada, September year to date, is about 15% lower than last year, and for CVMA members, production is down almost 20%.

It is projected that vehicle production in Canada will be around 2.45 million units as opposed to about 3 million units for each of the past two years. This difference equates to an annual production of two average vehicle assembly plants.

With respect to our domestic market, even though Canada enjoyed a record sales year last year with almost 1.6 million cars and light trucks sold, it took 12 years for Canada to surpass its previous sales record of 1988, and this 2000 sales record was supported in great measure through the use of very costly sales incentives that are unsustainable in the long term.

Indeed, Canada is the only OECD country that did not sell more vehicles in the decade of the nineties than it did in the decade of the eighties. This is reflected in the average age of a vehicle in Canada, which is about 8.3 years compared to 7.2 years in the United States.

Our members are concerned that disposable income in Canada is a real issue when purchasing a new vehicle or any other large consumer good.

If vehicles decline, we simply cannot replace the older fleet with vehicles equipped with the most advanced emission controls and safety systems. As a consequence the environmental, health, and public safety benefits are delayed.

The problem becomes clear when one compares the average transaction price of a vehicle sold in Canada and the United States with personal disposable income. In order to purchase a new vehicle in Canada in 1991, it took 105% of your personal disposable income. In the United States it took only 98%. In 2000, it took 146% of personal disposable income in Canada, versus 96% in the U.S. This is despite the fact that vehicle prices in Canada are significantly lower, roughly about $3,100 on average, on a common currency basis than they are in the United States.

Despite the September 11 attacks, it is projected that light vehicle sales in Canada will be in the 1.49 million to 1.51 million range. That's still a very respectable year, but again, it's achieved only through the use of costly sales incentive programs by the manufacturers.

You may also be aware that the manufacturing processes of our members rely on just-in-time delivery to bring parts to our Canadian manufacturing plants. Just-in-time delivery systems add efficiency, and therefore reduced operating cost, by minimizing the inventory actually at the plant.

In the days following September 11, production at automotive plants was disrupted as parts shipments were delayed at the Canada-U.S. border. This disruption was felt on both sides of the border. Parts manufactured in Canada were unable to reach the U.S., and conversely, parts manufactured in the U.S. were unable to reach plants in Canada.

The unplanned production loss resulting from parts shortages cost manufacturing facilities approximately $1 million to $1.5 million per hour, or about $25,000 per minute.

In response to concern over border delays, some manufacturers have taken the precaution of increasing inventory levels at their plants by up to 5% due to the cross-border uncertainties, which carries significant additional costs. These costs are now deemed a hard operating cost that Canadian plants did not previously incur, and it will become one of several factors to be considered in future investment decisions.

Canada and the United States negotiated trade agreements with the assumption the border would not impede the trade such agreements have actually facilitated. Canada must work to take the necessary steps to ensure border crossings remain unimpeded; otherwise there are real risks for the near- and longer-term sustainability of highly integrated industries like the Canadian automotive industry.

We believe it is in the national security interests of both Canada and the United States to maintain a secure border, but also a strong economy, which includes facilitating cross-border commerce.

Delays at the Canada-U.S. border have significantly decreased since the tragedies of September 11, but this has occurred largely because of increased staffing and about a 15% to 20% decrease in the volume of automotive trucking movements at the border crossings.

As the U.S. and Canadian economies begin to strengthen, there is a need to have a coordinated, strategic approach to border management. We support a coordinated approach to perimeter security issues. At the Canada-U.S. border, particularly for surface crossings, we need to take several important steps that will facilitate the flow of high-economic-impact, low-risk goods and allow resources to be focused on the higher-risk activities.

Specifically, we believe the following steps should be taken.

The physical security of Canadians and Americans is paramount. The economic security of our nation relies on trade, but in our view, security and trade facilitation are not mutually exclusive.

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Efforts to increase physical security and facilitate cross-border trade are best serviced by identifying the risk of the cross-border cargo movement or the traveller. We need to assign our collective inspection and enforcement resources to the higher-risk cargo shipments and travellers, while ensuring that our low-risk shipments and travellers can cross the border unimpeded.

Shortly after the September 11 tragedies, additional resources were allocated to the busiest surface crossings to ensure that existing customs infrastructure was maximized.

We support the U.S., including additional resources in their appropriations process to ensure that these border pinch points continue to be appropriately resourced.

Prior certification of transport drivers and frequent travellers, on a coordinated basis, and linked databases would facilitate the efficient flow of goods in low-risk travellers.

Dedicated lanes should be available for these pre-certified peoples and goods. Shared databases should form the basis from which the automated electronic clearance of low-risk goods and people can be facilitated and their border crossings expedited.

We should enhance what we already know and explore how transponder technology can further facilitate the flow of high-value-added, low-risk commercial traffic.

Initiatives such as the customs self-assessment program, which is designed to facilitate the flow of goods for those companies with significant cross-border traffic, are positive.

The CSA provides the opportunity, under specific conditions, to obtain pre-arrival clearance privileges and self-assessment customs duties payable. The CSA knowledge about the importer, the driver, and the carrier ensures that we can designate these shipments as low risk.

Unfortunately, the CSA has been delayed in its implementation, and a number of alterations have been made that would make it unnecessarily complex and a potentially costly process.

We are continuing to work with CCRA to address these deficiencies to ensure the process works as effectively as it was originally intended.

Congestion at the border has long been a problem. Maximizing the existing border crossing infrastructure capacity is essential for the intermediate term, but we also need a plan to upgrade and expand the infrastructure at key border crossing points on both sides of the border for the longer term.

Our problems at the border did not begin on September 11, and they will not be solved with a single, easy solution. A comprehensive, strategic, and bilateral approach is required to get the border right. Regarding these critical border issues, we'd like to acknowledge and express our appreciation for the ongoing efforts undertaken by the federal government in support of both our national economy and our security interests.

A faltering economy in the U.S., and perhaps to a lesser degree in Canada, has become more acute by the tragic events of September 11. Now more than ever, steps are needed to stimulate Canadian industry, increase consumer affordability of goods like automobiles, and enhance the productivity of Canadian plants.

We'd also like to take this opportunity to applaud and thank the federal government for the proactive steps it has taken towards reducing taxes in Canada. Reductions in personal income taxes that were implemented in the past year were actually very helpful in stimulating consumer demand during an economic downturn. We encourage the federal government to continue this trend as we move forward.

Aside from the border issues, what then do we recommend from a fiscal standpoint? We believe the following issues should be addressed by the government.

By its very nature as a capital tax, the large corporations tax has a disproportionate impact on corporate taxpayers who are capital-intensive, such as manufacturers, or who make significant investments in capital stock such as automobiles. Since the large corporations tax applies without regard to a corporation's profitability, it serves as an annual financial cost to corporations that invest in Canada—and it adds needlessly to the cost of vehicle leasing and financing by consumers. The large corporations tax represents a significant and unnecessary cost of doing business in Canada, and we recommend that it be eliminated.

On corporate loss transfers, many jurisdictions throughout the world allow corporate groups to transfer losses between wholly owned subsidiaries, thereby streamlining the tax planning process with a corporate point of view. Canada, however, does not allow the transfer of losses between wholly owned subsidiaries, resulting in higher administrative costs and an uncompetitive tax structure.

The CVMA recommends that the federal government implement tax changes to provide a straightforward, efficient system that would allow Canadian companies to transfer losses between subsidiaries of a corporate group and ensure Canada is well-positioned to compete for international investment.

On withholding taxes on interest payments, the current Canada-U.S. tax convention reduces withholding tax on interest at source to a maximum of 10% when interest earned in one country is paid to a resident of another country.

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As the U.S. is Canada's major trading partner, this withholding tax rate stands in contrast to virtually all other U.S. tax conventions with developed countries, where such withholding tax has been eliminated. This is of particular concern for the automotive industry, given the fact that other countries are competing seriously for automotive investment, potentially at Canada's expense.

On the manufacturing investment tax credit, manufacturing is a key generator of jobs in the Canadian economy. Capital is globally mobile and competition for investment is fiercer than ever. Governments in the United States and around the world are continuing to lower corporate taxes to attract new investment. In this context it is important that Canada ensure that it is an attractive jurisdiction for investment on an after-tax basis.

While we support R and D tax credits to encourage investment in high-tech jobs and to create potential future opportunities, manufacturing investments create large numbers of jobs for average Canadians today.

Particularly in this present era of uncertainty, we believe the Government of Canada should consider establishing a special manufacturing investment tax credit to encourage companies to locate manufacturing jobs here. A 5% investment tax credit for new manufacturing machinery and equipment would help preserve and expand Canada's manufacturing infrastructure and it would create associated jobs and other economic spin-offs.

On the removal of nuisance taxes, existing taxes on automobiles, for instance, the air conditioning tax and the contemplation of similar new taxes should be eliminated and avoided as they only make vehicles less affordable—and they delay fleet turnover. As I've mentioned previously, delaying fleet turnover only delays environmental and safety benefits for all Canadians.

In closing, Madam Chair, I'd like to reiterate what I have mentioned here today. We believe now more than ever that the federal government needs to facilitate a business environment conducive to economic growth. This requires a Canada-U.S. border policy that allows Canada to maintain its place in an integrated North American economy and a fiscal framework that provides consumers and investors with the confidence to keep our industry moving.

We like to say that what Canada drives, drives Canada. We hope the Government of Canada shares our commitment to keeping the automotive industry moving strongly.

Once again, I want to thank the committee for this opportunity to appear, and we'll certainly be glad to answer any questions you may have.

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

I'm going to turn it over to Mr. Armstrong now.

Mr. Robert J. Armstrong (President, Association of International Automobile Manufacturers of Canada): Madam Chair, I want to first thank you and the committee for the opportunity for us to appear before you today to present our views on market conditions in our industry and to have an opportunity to share the table with both my colleagues from the CVMA and the APMA.

To give you a little background, the AIAMC has 14 member companies. We represent 50% of the passenger car sales in Canada, 20% of the light truck sales, and 20% of the production in this country.

While our member countries are headquartered outside North America, either in Europe, Japan, or Asia, the majority of our members now produce vehicles somewhere within the NAFTA region.

That, again, reiterates this whole concern about the border. We aren't just moving goods and parts between Canada and the United States, as Gerry will tell you later; we're facilitating and moving goods from our factories in Canada not just to the United States but also through the United States to facilities in Mexico, and back as well. So it's a tremendous two-way trade.

Our members who do produce here export 90% of their production to the U.S. and Mexico and even back to Japan and the Far East.

Two member companies, Honda and Toyota, have invested heavily in their Canadian facilities in recent years, and they plan to more than double their total output between 1998 and the year 2003.

As Mark has indicated, the Canadian automotive industry has wavered slightly over the past years, following several years of strong growth. To the end of August, the industry as a whole had little to rave about. As of August 31 this year, light vehicle sales were down nearly 8,000 units, or 7%, versus the same period in 2000.

These results pointed to Canada having better short-term prospects, as industry sales were markedly better than those south of the border. However, due to the weakening U.S. economy, light vehicle production in Canada was down over 42,000 units, or 16.3%, a substantial year-over-year decline that mostly can be accounted for on lost sales in the U.S. market.

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While these figures reflect the softening demand in the North American market for Canadian-made products, the effects of the terrorist attacks were immediate and dramatic. We witnessed decreased traffic in our dealer showrooms across Canada as well as in the United States. September passenger car sales were down 9.3% vis-à-vis September 2000. It also resulted in light vehicle production reductions of 43,000 units, or 18% from last year.

September 11 obviously had a compounding effect on consumer confidence and built on existing concerns about a weak economy. The key for the future is to protect the investments already made in Canadian facilities to ensure that Canadian jobs are maintained until the North American market has a chance to regain confidence and begin spending again.

Since September 11, the results within our industry have varied. As you heard from the minister this morning, some manufacturers have been fortunate to have had new product launches, which have aided in boosting their salesroom traffic and which have provided a short-term sales boost. Meanwhile, others have relied upon ever-increasing financial incentives, which will in turn greatly impact on an individual company's profitability in the long term.

So the short-term concern for the Canadian economy is one focused on production. As one in seven jobs is linked to the auto sector, we're obviously vital to the economy of this country and clearly the largest single industry when it comes to providing high-quality, good-income jobs. We don't want to see manufacturers have to reduce shifts, reduce overtime, or, what is worse, eliminate any plants as a result of the impact on the economy. With regard to our member companies, because of successes over the past few years we've seen no indications that plant closures or shift reductions are necessary in the near future.

Our concern arises where the prospects for further development of the Canadian supplier network are in question. Our members will tell you that nothing makes a region more attractive than a healthy local source of high-quality, cost-effective components. This, coupled with the hard-working, efficient Canadian workforce, has made Canada attractive to our members as a base for new business investments over the last decade, and we want to see that trend continue.

Also, over the last few years we've benefited from favourable sales increases throughout North America, and this increased production is within the NAFTA region. Going forward, we want to ensure that our government is keeping a business climate that's conducive to further development for those already producing here and that's attractive to growing automobile companies looking for new production facilities. Hopefully, they would look at Canada as a place to come.

Let me just turn to the border. I don't know how many of you on the committee had a chance yesterday to see President Bush's live broadcast. I watched him live from his homeland security committee meeting. He made a statement that has us concerned and that's vitally important. He made it clear in his statement that the United States will seek compatibility and harmonization in immigration and customs procedures with Mexico and Canada. Now, that can be both a good thing and a bad thing, but he's made it clear they're going to seek this harmonization and compatibility.

This is what we've always striven for, to look at ways to let the business community do business in all three countries in the same manner. If you were to look at how we operate today with a Canadian production facility importing parts from the United States, we have a pretty efficient customs system. We don't have that much of a problem there, but suddenly, since September 11, we have had this problem exporting back to the United States. This puts a lot into question when 90% of your exports go south, so maybe the Americans can take a look at that.

Gerry and I in particular, and Mark as well, have been involved in this for the past two years. We've been talking for two years about infrastructure concerns we've had at the Canada-U.S. border. We've met with the Province of Ontario, we've met with Michigan, Ohio, and New York, and we've met with the federal government on both sides. There's been a lot of talk over the last couple of years. Everybody has seen this coming. Gerry and I were at a conference in Mexico and made it clear that we've got some big problems, and waiting for a new bridge or another tunnel is not the answer.

So the first order is efficiency. It was pleasant to hear Minister Tobin make it clear this morning that this was a priority of the Government of Canada. We want to make sure our government works closely with us in industry and with customs officials in both countries. I think now it's clear from President Bush with respect to Mexico, so we have to make sure we draw them into the equation. We want a continued open border with efficient fluid movement of low-risk goods.

Essentially, we should be treated with gold-card status. The auto industry is low-risk, and that's how we should be treated by all three governments. Keep the goods moving through technology. Mark has outlined some of the issues in his presentation. That's what we need above all, the confidence that we're going to keep the border open.

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The President's statement yesterday looks good, but what does it mean? That's really one of the reasons we're all here today, our own apprehension and worry as to what the U.S. plan is. How stringent will they make it? Madam Chair, you mentioned this morning that the National Guard would be coming off on Thursday. That's a concern to us because they've been one of the big helps in keeping our trucks moving. We need to pay attention.

Obviously, there is this whole need for heightened security. We have to ensure that this need doesn't impede the movement of goods, because it's going to increase. The statistics you're hearing represent a lull, but they're going to go up as consumer confidence comes back and people get back into the showrooms. Our sales are up. In October, I can tell you, the sales in North America were up—for a lot of reasons, probably—but they're up, so production will be back up and the movement of goods will be up again in our sector. We need that confidence.

Aiming to achieve a pre-September 11 level of fluidity is simply not enough. All Canadian points of entry, including those on the U.S. border, were already operating at capacity on September 10. More staff and infrastructure at these key border points were already needed, and now we have the challenge and necessity of increasing the efficiency of low-risk goods passage while heightening security to ensure the safety of Canadians and Americans.

Again, in the auto industry we also rely heavily on international markets both for the sale of our products and for the importation of materials and componentry. These may come from within the NAFTA region, as I said earlier, but also from Europe and Asia. Access to materials, parts, and service providers is especially crucial for automotive facilities with the just-in-time inventory controls that are common today. We don't want to see a Fortress North America.

We also have to understand that while there will be a perimeter in terms of immigration policies and the like, we can't impede the movement of goods to and from the rest of the world. That's vital to Canadians, incidentally, because you all know how huge our trade is with the United States. But I would submit to all of you that this country needs to increase its trade with the rest of the world, so let's make sure our government doesn't agree to a Fortress North America.

Also, Canadian-made products need to reach that market earlier—by the way, I'm just going off my paper a bit—

The Chair: Mr. Armstrong, can I ask you to...?

Mr. Robert Armstrong: Yes. I just wanted to close and underscore that point.

We agree with Mr. Nantais's presentation with respect to taxation and the like, so I won't cover that.

Just in closing, I'll say the need is for consumer confidence to come back. We'll do everything we can to get the consumer happy and buying again. We have to show Americans that we are a secure country.

Stimulus is required to instil new hope, and as I said, we need to keep the pressure on the United States. We need to ensure that all our ministers are teamed up and that they are teaming up with their counterparts on the other side of the border. It shouldn't just be one guy here and one guy there. Let's get all of them together in a room, sit them down, let them find a solution, and make sure the border is open and stays open.

Thank you.

The Chair: Thank you very much.

We're going to turn now to Mr. Gerald Fedchun, the president of the Automotive Parts Manufacturers' Association.

Mr. Gerald Fedchun (President, Automotive Parts Manufacturers' Association): Thank you.

As Madam Chair is well aware, but others may not be, the Automotive Parts Manufacturers' Association represents 90% of the suppliers of parts and services for new automobiles—or new vehicles, since half our production in Canada consists of light vehicles. We have over 400 members, 100,000 employees, and, in 2001, sales estimated to be about $32 billion. Now, of that $32 billion in sales, fully two-thirds is exported, with 90% going to the U.S.A., a large portion going to Mexico, and then the rest going around the world.

It's important to note that our industry is actually a very young industry. Back in 1965, total production was worth half a billion dollars, and as recently as 1991 our total sales were only $12.5 billion. So you see there has been tremendous growth, and the significant part of that growth was generated by our increased export sales. As previously stated, North American production is now fully integrated. In North America we are joined at the hip when it comes to automotive production.

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Prior to September 11 we had significant border crossing problems and delays. Several solutions have been underway for several years. I was looking through some old papers going back to 1995. There were some new things, such as the addition of the U.S. to the CANPASS system, which was at Sarnia. It has been suspended for the moment.

Following the events of September 11, we now have the need for additional security. But that is all doable. The technology is available, and by the intelligent application of technology and procedures that are now available, we can have better border access and a higher level of security.

The reason our border is open is JIT, or just-in-time. I don't know if that has actually been explained. The reality is that we have no inventory. We build it and our customer uses it hours later. That's it. Whatever inventory we have is on the vehicle, the plane, or the train. There is no inventory at our side or at the customer's side.

If there's a border delay, all of a sudden we need some inventory, and the customer says to us, you had better keep some inventory on hand just in case; you had better open up a warehouse on this side of the border just in case. We now have all these expenses. But our competitors on the other side of the border don't have that expense, so slowly but surely we become less and less competitive. Or they say, maybe the border is going to close, so there's a reliability issue. So slowly but surely again the export part of our production withers, and with that, 66,000 jobs in Canada are at stake. This need not happen. Our recommendation is to avoid this.

We have several recommendations to make sure it doesn't happen, some of which have been previously mentioned to you. The first priority is that Canada must be inside a North American security perimeter against terrorism, and this is for our benefit, not for anybody else's. I want Canada to be the safest place to be in North America. There's a side benefit to that, which is that other people in North America will also be safe.

Secondly, Canada needs better screening at our perimeter. Our screening must be the best. No one must be able to say we're playing second fiddle to that. Everyone must be able to say that the Canadian screening system is as good as or better than anyone else's and therefore we can rely on the Canadian screening system. There has been some perception, fueled by some in the media, that the Canadian screening system isn't as good as it should be. I have to tell you that I've learned over years in business that perception is reality, so we must make sure there is the perception and the reality that our screening system is the best.

At the actual border we need increased use of pre-inspection in each other's country, an extension of the present airport pre-screening system. This does not involve new methods, just an extension of our existing border inspections at the airports. There's a great advantage to doing this. It allows segregation before you get under the structure of high-risk and low-risk freight so that the low-risk freight and people can move more quickly. Then you can spend more time on the appropriate inspection of the high-risk freight

We need high-security passes for frequent travellers, both individuals and transport employees, again so that the predetermined low-risk people can travel quickly and easily through the border and the high-risk still get a chance for inspection.

We need electronic processing of customs forms prior to getting to the border. This is quite doable. When the truck leaves the Canadian supplier plant, there's an electronic transmission of all customs information to the border point. When the truck arrives, it's already pre-cleared in terms of customs, and it quickly crosses the border with appropriate security clearance. Again, the technology is there. We just need to use it.

To make this happen, we need some infrastructure. We need some marshalling yards at the border crossing points that are secure so that things can be inspected there and then go across quickly. We also need improved infrastructure to get across the border. This is something we were harping on prior to September 11. The reality is that we need a new bridge at Fort Erie, a new highway in southern Ontario to get to that bridge, and a new bridge in Windsor. Those are more important now than they were before.

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If all of these measures are taken, the Canada-U.S. border can continue to be a very open border, more open than it has been in the past for business, but in fact more closed than ever to terrorists or other inappropriate people. The technology will do it. We just need the will to employ it. We're certainly willing to do our part as an industry to make sure that happens.

Thank you.

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

We will now move to questions, and we'll start with Mr. Penson.

Mr. Charlie Penson: Thank you, and I welcome the group to the committee today.

Many of us understand how important the automotive and automotive parts industry is to Canada in terms of our manufacturing sector and the huge income it creates and the amount of product that's exported. I think some excellent suggestions have been made by the group.

This is what I want you to comment on. Even though your industry is a low risk in terms of security, and there are some problems that can be solved to make it even better, if Canada doesn't comply with the U.S. security concerns, it really doesn't matter, does it? If they decide to use the border as one method of punishing us for not working with them to solve that, it's going to have a huge impact on your industry.

I want to ask specifically about the investment aspect of that. I think Honda has raised the issue. With 90% of your production going to the United States or Mexico, if there's the potential for the border to be a problem for you, why wouldn't you locate your plant in the United States if that's where the market for your product is?

I think Mr. Fedchun really brought it home by saying that Canada must be inside that security perimeter. But isn't it very important for the Canadian government to understand that given the size of your industry, this is an absolute must. You're integrated to such an extent that it's going to harm you.

So there are two questions, really. I'd like Mr. Thomas to comment on the investment question.

Mr. Art Thomas (Association of International Automobile Manufacturers of Canada; Senior Manager, Corporate Affairs, Honda Canada Inc.): If I understood your comments correctly, from our perspective the border is as vitally important as it is for any of our colleagues. The idea of investment in plants and employment in this country is a critical one for us. One of the reasons we chose to be in Canada, notwithstanding some of the economical benefits, is the idea that we're closer to our customers.

While many of the parts we make here are exported to the United States and 12 other countries around the world, we do build the Civic here, and the Civic is the number one passenger car in Canada. We want to be close to our customers. We don't want to be forced into a situation where government, if I can put it this way, is dictating certain investment strategies. So to us it is critical that the border be open and accessible.

With regard to Bob's comments, I'm concerned about north-south and south-north, but we're also concerned about around the world, as we not only export to many other countries but also import from many other countries.

I hope that has answered your question.

The Chair: I think Mr. Fedchun would like to respond as well.

Mr. Charlie Penson: I'd like to follow up with Mr. Thomas before that happens. But most of your product is exported to the United States, isn't it?

Mr. Art Thomas: That's correct.

The Chair: Mr. Fedchun.

Mr. Gerald Fedchun: If the border is not fully and freely open, our industry will wither. We won't die because there will still be some production here, but it won't be anywhere near what it has been in the past.

It's very simple. You have a business case for having a plant in a particular jurisdiction. You add up all of your costs and say, that's my lowest cost of production, so I'll put it here. Right now our health care system gives us a great advantage, as does the value of the Canadian dollar. The level of our skilled trade also gives us a great advantage. There are a lot of other things that contribute to us having a lot of production here.

But if all of a sudden we now have to carry more inventory, there's a delay factor at the border, our reliability is going down, and quality is going to become an issue because of all of that, and slowly but surely they say, gee, when you do an analysis, this isn't the best place to put the plant; we'd better put it where it's closer to our other factory.

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That's just the reality you have to face as part of economics. So we must keep that border as open as it ever has been so that we don't get those extra burdens put on the balance sheet when we're trying to do new plants in Canada.

Mr. Mark Nantais: If I can just supplement that, I think Gerry has quite clearly articulated the reality, but in addition to that, in order to avoid what you're suggesting may happen, certainly our member companies on both sides of the border are working at the highest levels in government to ensure the border is not used as a trade issue, something they can use to penalize us. We're working very hard towards this bilateral strategic approach to border management, and I think that's how we can hopefully avoid what you're suggesting here.

Mr. Charlie Penson: Mr. Nantais, you were here when the minister was here this morning. He was saying that border traffic commerce is essentially almost back to normal. Isn't that a bit of a sleeper given what George Bush was saying yesterday and the direction that's coming out of the U.S., that if Canada doesn't harmonize our policies on immigration and other issues, they are going to tighten this up? Isn't that the real worry?

Mr. Mark Nantais: If they tighten it up to a point where it impedes our shipments of parts and finished products, absolutely. But that's why we're working on both sides of the border to ensure that doesn't happen.

When you look at our industry, we have pretty much enjoyed a very favourable business climate in Canada, but I think we're now entering a whole new realm. We don't have the Auto Pact any more. There's no requirement to continue investment in Canada. We have NAFTA, of course. We operate on a North American basis and soon, perhaps, a hemispherical basis. The very trade agreements we're entering into should not be hindered in any way, at least north-south, by impediments at the border.

Mr. Charlie Penson: Mr. Nantais, are you part of an organized group of Canadian and U.S. counterparts meeting on a regular basis to try to resolve this?

Mr. Mark Nantais: Actually, there are so many groups out there, but certainly in the auto sector, as Bob pointed out originally, we are working very closely here as it relates to our sector. We also have ties, through the associations and individual member companies, with other organizations that are also looking at the border.

Again, the key here is a coordinated approach, an aligned approach, to our policies here in Canada relative to the United States.

Mr. Charlie Penson: Thank you.

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

Mr. McTeague, please.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you all for being here today, and thank you, Madam Chair and the committee, for making this a priority.

I obviously have an interest in your industry, Mr. Beatty. You'll say, hi to my good old colleague F. David Stone, of the same company, whom I worked with many years ago.

Mr. Nantais and others, I have a couple of questions that I wish to ask with respect to how successful your efforts have been with your counterparts in the United States, with respect to ensuring that they too understand the message, given that these are companies with common interest. Could you perhaps give an illustration?

I know, Mr. Beatty and Mr. Thomas, you have plants in other places: Sparta, Kentucky, Georgetown, as well as some of the plants down in California.

Perhaps all of you here can give us an indication of just how successful you are in raising the point that Canada is very much an important part of automotive manufacturing and automotive marketing on a North America-wide basis, and perhaps examples of where you may have beefed up security within your own companies, given that many of them may very well represent the kinds of symbols that could be attractive to terrorists, and by implication, your plants here in Canada.

Mr. Robert Armstrong: I just want to mention that one of the concerns we've had as an industry is Washington.

I held a conference last week on border concerns, and the senior people in the U.S. weren't allowed to come. But I was also informed by their new head of customs that he could not and would not entertain seeing us, or our American counterparts, by the way, until after November 15. That's why we were trying to drive home the one point.

We are worried they are driving the bus and they are going to come back and say, here are the new border procedures you're going to follow, and by the way, come on down now and we'll talk to you.

The next two weeks are critical. That's why I mentioned that the statement made by the President of the United States was pretty clear yesterday as to what their plan is. That's why we urge the Canadian government, above all, to make sure we have a coordinated team that can meet their whole team, that whole homeland security team, and find a solution, while we in industry—Mark, Gerry, and I, with our counterparts—do our thing with our counterparts in the U.S. But they haven't even been able to get in to see the people in Washington yet because they're buried in this homeland security team.

• 1045

Mark, did you want to add to that?

Mr. Mark Nantais: I think that's correct. I do know, again, that the vice-presidential level in the companies are meeting with some people in Washington. Access to some of them is somewhat impeded simply because of the current state of affairs in Washington. I know the meetings we've been trying to get together at have been delayed a couple times now. These are bilateral meetings with U.S. government representatives.

So it has been very difficult. It's very difficult times for them in Washington, and I'm not sure we should fault them for that, but we have to get on with the job, and sooner rather than later. Until we can agree jointly on how we can move forward without compromising security in ensuring maximum trade of commerce, we're just going to have keep pushing, I think.

Mr. Michael Sheridan (Director of Government Relations, Ford Motor Company of Canada Limited; Association of International Automobile Manufacturers of Canada): Each of the Big Three representatives, on both sides of the border, have done yeoman's work in terms of making the case for an open border.

We have worked with the state delegations on the border. We've had a major representation in Washington. I can say that the Canadian delegation has done a fine job in terms of making the case for an open border. They've done a nice job in Washington in terms of getting this point across. So each of the Big Three has been working on this issue prior to September 11, and they clearly have picked up the pace post-September 11.

Mr. Dan McTeague: Do I have time for one more question?

The Chair: I think Mr. Beatty wishes to reply.

Mr. Dan McTeague: Mr. Beatty, thank you.

Mr. Stephen Beatty (Vice-President, Corporate Affairs, Toyota Canada, Inc.; Association of International Automobile Manufacturers of Canada): Thank you.

I want to point out also that, obviously for companies like Toyota, with about two-thirds of our sales now being made here in North America, we're also very much involved on both sides of the border in dialogue both with our industry counterparts and with government.

But I think the clear issue here is that the U.S. isn't much interested in talking about the economic impacts of September 11; they're interested in talking about the security impacts. As industry and as government, we have a shared concern that we have to deal with those perceptions of the border. That will become the number one priority of policy-makers in Washington and along the border. That those security concerns may not be well-founded is really not the issue; it's that there is a very real concern being felt today. That is where the priority is being given.

As Canadians, I think we have the responsibility to ask ourselves what we can bring to the table, how we can address those concerns to the Americans and deal with that issue.

I can tell you that from a corporate standpoint the issue isn't the short term and what the impact is at the border on our day-to-day business, and it isn't the long term, because companies like Toyota are very convinced that Canada is a good place to be and that the investments we've made here are wise decisions. The problem will be that medium term, if the U.S. decides to take a security action at the border.

That's where we believe the priority has to be, and that's why we're looking for an expansion of our partnership on both sides of the border with industry and government. We think those issues have to be discussed.

The Chair: Mr. McTeague, before you go on....

Mr. Fedchun, please.

Mr. Gerald Fedchun: Just as a quick comment, we have a lot of allies in the U.S. We have a counterpart called the Motor Equipment Manufacturers Association that is working on this as well.

The reality is, we actually import more parts from the U.S. than we export from Canada, so a huge number of American companies and people have exactly the same interest we have. We're trying to mobilize those into a common group to make sure everything gets done so that we can show that by use of technology the border can be more secure than it has ever been and still have that speed of entry for the kinds of goods we want to get across.

Mr. Dan McTeague: On that point, assuming announcements will be made to prioritize the issue of security between the borders, and given the overwhelming concern by CEOs with respect to the need to create a common frontier by which we can exchange goods and services, how then will your organizations respond if we've done everything and when it's all said and done we still have a border-crossing problem as a result of the apprehension in the United States? What positions will your organizations take vis-à-vis, in many respects, your parent companies, where you may have far more influence than we will as members of Parliament in bringing this argument you just made to reality, to light?

• 1050

Mr. Gerald Fedchun: The reality is, we will lobby like there's no tomorrow, because it's life and death to our industry and to our American counterparts. We can't afford not to win; it's that simple. So we will win.

Mr. Dan McTeague: Thank you.

Thank you, Madam Chair.

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

[Translation]

Mr. Bergeron, please.

Mr. Stéphane Bergeron: Thank you, Madam Chair.

I must tell you that as a Quebec MP the mention of the difficulties in the automotive industry in the wake of the events of September 11 rather puzzles me. There is only one automotive manufacturing plant on Quebec's territory, the GM plant in Boisbriand. The closing of that plant was announced before September 11. However, that plant was said to be one of the best performing plants in North America according to an analysis conducted in 1998 by the auditing firm of Yvon Cyrenne for the Comité de soutien de l'industrie automobile dans les Basses-Laurentides. According to the study, this GM plant was one of the most competitive of the American group.

Therefore, there is good reason to ask ourselves why GM decided to put an end to the operations of the Boisbriand plant. Of course it was said that both cars that were built in Boisbriand were loosing ground in terms of sales. There does not seem to be a market anymore.

Maybe it is an illustration of a lack of vision or planning on the part of the automotive maker which was not able to capitalise on a performing plant to integrate a new model.

I also know or I was told that you were not really in favour of the appearance of the people from the Boisbriand plant before this committee. You are presenting a certain number of requests to the government this morning regarding the difficulties that the industry is facing following the events of September 11 and I think that it is legitimate. I think that you also alluded to that this morning. I believe that you are also perfectly aware of the fact that you will have to implement a certain number of measures in order to deal with the consequences of the events of September 11.

Here is my question. With relation to measures that you must implement to deal with the events of September 11 and given the new circumstances since September 11, what are the forecasts of GM for the Boisbriand plant in particular?

When the closing of the plant was announced, there was some tall of a plan or forecasts or at least noble intentions toward the Boisbriand plant. On the one hand, do the events of September 11 put a question mark over the commitments of GM regarding Boisbriand? On the other hand, given the events of September 11, what does GM intend to do to remain a partner in the province of Quebec in the automotive sector?

[English]

The Chair: Mr. Nantais, I'm not sure if you have all the information in front of you to answer that question.

I do apologize to the members that General Motors was unable to be here themselves today, but Mr. Nantais does represent the Canadian Vehicle Manufacturers' Association, so I'll allow him to respond.

Mr. Mark Nantais: Thank you, Madam Chair.

Clearly, these are questions most appropriately answered by General Motors, and unfortunately our General Motors representative is out of the country and could not make it back in time for this hearing.

But I think the question does point to a reality that exists in the automotive industry. It points to the fragility of the Canadian automotive industry. We have overcapacity worldwide at 22 million units, of which about 35% resides in North America. We have a constantly shifting market where consumers' demands are changing for sport-type vehicles and other types of vehicles. Of course, when they change, there could be more or less demand for these types of vehicles. So I think the decision was made, and I can't speak on behalf of General Motors, but it points again to a changing market and the overcapacity situation in the North American market, as well as worldwide.

So you're quite right, Madam Chair, these are questions that I cannot appropriately answer, but everyone does need to understand that things are quite fragile in our industry. We have Mexico and other jurisdictions that are becoming much more favourable than they were originally positioned as places to make investments.

• 1055

I'll stop there. Those questions are most appropriately addressed by General Motors.

The Chair: Thank you.

Mr. Beatty.

Mr. Stephen Beatty: I was just going to say that the details of the GM plant are for GM themselves to address. But I hope Mr. Bergeron will also listen to the concerns we're raising today, from the standpoint of other manufacturers in the province of Quebec.

For example, there are Toyota group parts companies in Quebec that are affected by the impact of the border slowdowns. On their behalf and on behalf of the other parts manufacturers and companies active in the province, it is a concern for us. We hope we can enlist your support on those border issues.

The Chair: Mr. Fedchun.

Mr. Gerald Fedchun: I just want to make it clear that I have more than 20 members from the province of Quebec in the parts association. I don't know their exact number of employees, but I know for sure it is more than the number of employees at the GM plant.

In Quebec, a growing number of parts manufacturers are dealing in aluminum and magnesium, drawing upon Quebec's natural advantage of its access to aluminum, magnesium, and electricity. So there's a growing parts manufacturing industry in Quebec, and it's getting bigger.

The open border is vital to their success. Since they're new players on the block, they have to make sure they don't have any disadvantages, because they have to take market share away from other people. So if there is any kind of impediment to that, they'll have difficulty doing that.

[Translation]

Mr. Stéphane Bergeron: I said earlier that I think the requests you are making to the government are legitimate. I would like to point it out simply to reassure Mr. Beatty and Mr. Fedchun, who made very appropriate comments.

I understand the reasons behind the absence of GM here this morning, but I do hope to get an answer to the question that I asked this morning. I must say that myself and several other members of this committee will likely have taken good note of the comment of Mr. Nantais who said that from the point of view of legislation, regulation and salaries, the automotive industry sees several advantages in investing in Mexico, for example, rather than in Canada.

[English]

The Chair: Thank you, Mr. Bergeron.

Madam Torsney, please.

Ms. Paddy Torsney: Thank you.

First of all, it is great to hear from you and to talk about some of the issues that are very important to you. The automotive sector is certainly important to my riding, and particularly the parts sector.

The minister mentioned that GM had record sales for the month of October, and I hope that translated right across the board. But that was the result of incentives and what have you. I'm wondering how long they will continue. Maybe we can encourage viewers to buy new cars. What is the cost to the industry? Are these incentives sustainable?

The second question I have is for Mr. Nantais. He mentioned a number of different taxes. I hope that when companies are looking at investing in Canada, or continuing to grow in Canada, they don't necessarily tease out each different tax and say, they have this one and therefore we're not interested, but they look at the bundle of taxes and the overall rate.

You mentioned specifically a tax incentive on manufacturing. The first thought in my mind was how much does that cost? Have you figured it out? Does anyone else have such a tax? We should be looking at what the comparatives are. What are some of the advantages?

Finally, my last question is really a process one. I would gather that parts, for instance, are shipped in trucks and by rail container. I'm not sure why those can't be inspected, sealed, and moved off. When it comes to the actual cars going back and forth across the border, I assume containers aren't closed, although I could be wrong. Are they checking trunks, hoods, and everything else now as a result? Is that part of the delay? Are there ways to improve the actual process of getting across the border? I would hope that the industry is looking at X-ray machines and everything else for cross-border inspections to make sure there aren't people in the containers or in the trunks or whatever else.

• 1100

I don't know that there's a lot of discussion about some of those opportunities or processes and what we can bring to bear in terms of getting Canadian industries in there and making sure those are the accepted methods at the border. Obviously it's important to all of us.

So those are a couple of different issues for you.

Mr. Michael Sheridan: In regard to your first question in terms of investment decisions, clearly when an investment decision is made by a company, they look at the bundle of factors influencing it. The cost of labour is high among them, but there are also tax issues. Corporate tax rates in Canada are projected to fall below those of many states in the United States, so in fact that's a benefit. That's clearly understood and recognized in any investment decision.

R and D tax credits, which Mark alluded to earlier in the discussion, are another. The investment tax credit is just something over and above this that would incent manufacturers to further invest in Canada. Again, the cost is really predicated on the size of the investment. So it's a 5% investment tax credit on the size of the investment.

But we look at those factors in totality. One is the capital tax. This clearly is a tax that impacts on our industry disproportionately. We're a heavily capitalized company. Ford Motor Company, for instance, invested $8 billion in Canada over the course of the 1990s, and that clearly, from a capital tax standpoint, disadvantages us, and clearly it would be a tax that we have asked the government to see if they can remove because it clearly does disadvantage those companies that invest in Canada.

Ms. Paddy Torsney: But on the manufacturing incentive tax, sure, 5%.... The finance minister is not going to take a recommendation from the committee unless he has some clue as to what it's going to cost him. Do we look back for a year or two and see what average investments are? Do we look forward and see what you would like to do or what you could do? Do you make some guarantees that you will invest in equipment if that is introduced? What are some of the projections of what it could be worth?

Mr. Michael Sheridan: The issue is that the cost is only if the investment is made.

Ms. Paddy Torsney: Right.

Mr. Michael Sheridan: There's no cost associated when no investment is made. Clearly, we're at a point in time, as Mark mentioned, in terms of overcapacity that we are challenged today to try to compete with other jurisdictions within North America, primarily to attract and hold the investment we have. In terms of looking back, I suspect over the next few years we will not have the level of investment we have seen in the previous decade. Again, that's going to be a challenge that we'll try to work with the government to incent. I suspect it will be a difficult number to come up with from an industry standpoint.

Again, it's an amount that's predicated on the investment. It's cost-free if no investment is forthcoming.

Ms. Paddy Torsney: Your sales records for October versus—

Mr. Michael Sheridan: Clearly, there's an issue here, I suspect. If we were all sitting back in September prior to the crisis, we were all expecting the industry to soften this year. September 11 clearly was an event that significantly impacted consumer confidence on both sides of the border. In an attempt to try to dampen that reduction in consumer confidence, the industry has heavily incentivized vehicles. The question is, have they pulled ahead those sales into 2001, and will we pay back in 2002? That's the question before us. We should see a September and October this year that are quite strong, but the concern is that these are pull-ahead sales that we've pulled from 2002, and that's a concern.

The Chair: Mr. Fedchun.

Mr. Gerald Fedchun: I'd like to make a comment on some of the equipment you mentioned at border crossings, such as large X-ray machines to X-ray whole trucks. That's part of the infrastructure we've recommended. Obviously this is something the government has to do on both sides of the border, because they're in charge of that machine and they have to say, yes, that's okay. The idea of sealing trucks is the kind of procedure we're recommending, but again, the governments have to have legislation that says once you've sealed a truck there's a different level of inspection.

We agree with all of that. Those are the kinds of methods and equipment that could speed border crossing and at the same time enhance security.

The Chair: Mr. Beatty.

Mr. Stephen Beatty: Thank you.

• 1105

On your specific question about incentives, I'll express a personal view as opposed to an industry view. Incentives probably aren't a good thing, whether they're applied by industry or by government.

What both sides should be doing is looking at the total business environment in which we're operating and making the long-term investments that are required to make Canada an attractive place, not only to be in, but to continue to grow our business in.

That's why, in large measure, the sorts of things we're talking about are investments in infrastructure programs. In some cases, they are related to the question of the overall cost of doing business in Canada, but I'm not sure the emphasis should be on the incentive side as much as they should be looking at what those things are that make us competitive as a nation, and in turn as companies, in terms of our production here in Canada.

If I could suggest a bias to the committee, I would move toward making those strategic investments rather than encouraging incentives on either side of the divide.

The Chair: Just before you go on, I'll recognize Mr. Jure.

Mr. Doug Jure (Special Adviser, DaimlerChrysler Canada; Canadian Vehicle Manufacturers' Association): To get back to the border crossings and the shipments across the border, just to give you an idea, at Detroit and Sarnia, we're one of the heaviest users, and the combined shipments back and forth are some 1,480 shipments daily. In terms of the value of the vehicles we ship daily across to the United States through Detroit and Sarnia, it comes to $53 million. Most of that is by truck. I can assure you our company would be very interested in exploring any technology that would improve the border-crossing examinations.

We also have provincial jurisdictional issues, such as electronic logs when our trucks are going through Ontario, that we're working out. There's a multitude of issues involved in this, but that gives you a little perspective on the traffic at the border.

Ms. Paddy Torsney: What about staffing and immigration issues? Are you being held up? Is it an issue for moving a new president from a foreign jurisdiction, or are there issues with getting staff back and forth across the U.S. border?

Mr. Doug Jure: Sometimes it is an issue. Between Windsor and Auburn Hills, we have 400 employees crossing the border back and forth. Occasionally they do run into problems coming into Canada, but the next day it could be fine.

Ms. Paddy Torsney: Okay.

Mr. Gerald Fedchun: It's been a problem for a while, but it comes and goes. One of the difficulties on the U.S. side is the high level of discretion the U.S. immigration officer has. When I was at ITT one of my vice-presidents got turned back at the border going over to our Detroit headquarters because he didn't answer the questions the right way. That's one of those things that happens, but generally speaking, there aren't difficult problems.

Right now, there's just the volume versus the number of questions that has slowed the individuals going across significantly. Hopefully with the new appropriations of more people on the U.S. side, that will be overcome. It has simply been a manpower problem over the last month or so.

The Chair: Thank you, Ms. Torsney.

We're going to move on.

Mr. Strahl please.

Mr. Chuck Strahl: Thank you Madam Chair.

I do thank the industry representatives for coming today. It's been a good presentation. I think we have a better sense of the urgency you've all conveyed to us, so that's important.

The minister said earlier this morning that the tourism industry is a canary in the mine shaft, that maybe the first blush of problems we'll get will be detected in tourism. But certainly, in the manufacturing industry, you folks represent the canary. All your comments are extremely important to us, and we want to make sure we address them as best as possible.

It does make me wonder why the industry minister has not met with his U.S. counterpart, especially if, as has been mentioned, the U.S. administration won't meet with the industry reps of the biggest single industry in both countries. I don't know what we're going to get out of them before November 15, other than to carry forward that sense of urgency.

I have two or three comments and then a question.

I urge you to continue to link environmental cleanup with your new vehicle sales. This is something in British Columbia that's a big issue. In B.C., we spend tens of millions of dollars a year on checking to see how clean a 20-year-old vehicle is, when it pollutes 10 times as much as a new vehicle.

• 1110

I think to continue to link the fact that new vehicles are much cleaner environmentally is a good thing. It's good for sales, but it's also good for the environment, and I encourage you to continue to make that link and to continue to work hard on making your vehicles as clean as possible.

On the security issues, it appears to me we're going to see a package of them now. People have personal security issues, things like job security, feeling safe, travel safety. These are all personal things. There's also the economic security of our country and your industry, which is linked somewhat to that and is also important. Then of course there's the physical security, and that involves the perimeter security issues the President mentioned.

I think all of us in all of our conversations should urge that people understand they're all linked. We're going to be facing that sense of security. It's as much psychological as it is actual, but we have to address it and link them all together.

I'm interested in two things. I'd like to talk about the Competition Act, but we've left that for another day.

One thing that hasn't been mentioned is the sense of patriotism that the Americans are feeling right now. Again, whether it's real or imagined, I think it's a concern in some industries—and I wonder if it is in yours—that parent companies are going to see a kind of patriotism bonus in repatriating some of your industry back to the United States, that the “made in America” slogan—which is a great one, just like our “made in Canada”—will be used as an excuse to bring industry back to the States.

I wonder if your parent companies or the industry are concerned about that at all, because it does seem to me that although we have this North American car industry in which we're hopelessly, and thankfully, interlinked, the parent companies may just use it as an excuse. I'd like your opinion on that.

Second, in the just-in-time industries, what is the timeline for before people make the investment changes?

Mr. Fedchun, you mentioned, for example, that unless the perimeter security issues are addressed, the industry is in danger of withering away. I don't think that's likely to happen tomorrow. But what you're suggesting is that investment and modernization and so on is down the road if we don't get our act together.

What are the timelines? Do we have until November 15, is this a six-month thing, or is it just going to gradually happen? Are there some deadlines that you see happening in the industry?

So there are two things. Is the industry concerned about the patriotism angle, and what can we do to address that? Then there's the JIT industries.

Mr. Gerald Fedchun: Let me address the JIT, because I'm not really qualified to deal with the other one, since the majority of my members are Canadian-owned. The JIT I can address.

It goes to model changes, because you bid on a model. For example, the 2004 redesign for the Toyota Camry, let's say, is coming up. You bid on that now and you win it. When you win it, the question of where you're going to produce it is on the table. That's when it will come up, and of course this is going on...we have hundreds of models produced in North America. It will come up as each model is coming up for bid in terms of its next model change.

That's why it will happen gradually, because every year 10% or 15% of their models are being changed, and an average model lasts three to four years before it has significant changes to it. That's why it will be a very, very gradual shift. It will be like the tide going out very slowly.

Mr. Stephen Beatty: Mr. Strahl, I don't think there's a single answer to your question.

I'm here today with my colleague from our plant, Greig Mordue. Greig is in the middle of helping to gear up for production of a brand-new model in January. We have previously announced we're bringing Lexus production to Canada.

So we're still in an expansion phase in the country, and you'll see that investment going forward over the next while. But we are at a different point in our corporate history from that of other companies at this table.

• 1115

I think the answer is people have to make decisions about investment in real time so there really is no opportunity for delay in trying to address concerns about the economic and trade framework in Canada. Decisions are made continuously. You have the opportunity to influence decision-making in the industry.

As I said, we happen to be at a happy moment in our history of expansion. It's not the case for all companies.

The Chair: Mr. Sheridan.

Mr. Michael Sheridan: Thank you.

First of all, to your first comment on the environment message used by manufacturers selling vehicles in Canada, clearly it's an issue that has been addressed broadly by the industry, and Ford specifically.

You did make a comment saying a ten-year-old vehicle was actually ten times dirtier. It's actually twenty-two times dirtier. It's a bigger issue than you presented. It is one we're quite proud of in terms of introducing low-emission vehicles to the marketplace.

From a patriotism standpoint, we produce 600,000 cars and light trucks in Canada. We have the world mandate for the Windstar. We have the world mandate for the Crown Victoria and the Grand Marquee for the Ford Motor Company. At the Ontario truck plant, we also produce the F-series pickup truck. I do not see patriotism, as you pointed out, having a major impact on our facilities. We also produce, in Windsor, Ontario, 1.5 million engines, primarily for shipment to the U.S. market.

We're quite proud of the footprint we have in Canada. Patriotism is something where I don't feel the impact will be significant.

I have a little anecdote from a just-in-time issue. Four hours after an engine leaves Windsor, it's in a Michigan truck. The border is so important for us. We, again, ship about 1.1 million or 1.2 million engines from Windsor to the United States to eight of our fifteen assembly plants. The four-hour window is a point we use. When we did have a border issue on September 11, facilities were closed on both side of the border as a result of not being able to get the engines to the marketplace.

In terms of investment decisions, they're made daily. We invest all around the world. We invest all across North America. Decisions and factors that hit us on a daily basis are considered when investment decisions are being made. There's really no window that we have to operate within. This is a crucial issue that has to be addressed as quickly as possible.

The Chair: Mr. Fedchun.

Mr. Gerald Fedchun: I wanted to make one comment about patriotism. People never forget who their friends are.

As I understand it, the HMCS Vancouver just left for the Middle East. I think it is the sixth Canadian naval vessel there on service.

On September 11, I think there were 150 planes diverted to Canada. People were put up in communities all over the country and brought into peoples' homes. That kind of hospitality has been broadcast across the United States by many groups. It has received a tremendous amount of publicity. I wouldn't say it's out of proportion to what happened, but in proportion to the feelings of friendliness and hospitality it generated. Canadians are a generous people. I don't think it will go unnoticed later on when things come up in terms of who your friends are.

Mr. Chuck Strahl: I hope you're right. I do agree. In some ways, I think we have to rebuild some of the friendships we've had with our American partners. I think some of them have been put at risk in recent years, frankly.

I agree with you. It's important that we do our part, both in the fight against terrorism and to show we're willing to consider the President's concerns, and Mr. Harris', Mr. Campbell's, and Mr. Landry's concerns, about the perimeter security issues. It affects your industry especially, but others as well.

Do I have time for one more question?

Where investment and modernization take place is going to be crucial to where the industry ends up. A plant that's allowed to languish has a death sentence. Modernization is important and reinvestment is important.

Are any of you willing to comment on how important it is to harmonize our Competition Act between Canada and the U.S.? There's likely going to be a bilateral agreement after this review goes forward. Is there something that concerns you? Do you feel you could be victimized? Is there an opportunity one way or the other in having a harmonized competition policy with the United States?

• 1120

Mr. Gerald Fedchun: I'm going to comment. I don't know what the differences are. I'm embarrassed to say so, because I have a Masters of Law degree and took competition law twenty years ago from one of the experts. Unfortunately, I haven't been in that area for the last ten years. I did know what the differences were, but I no longer do. Probably my colleagues are in a similar position. We'd have to get a little more information before we could comment.

Mr. Chuck Strahl: Sure.

I would then wrap up. Mr. von Finckenstein did give us a sample bilateral agreement between Canada and the U.S. With something especially like the JIT industries, I would think it's important that you're satisfied it addresses any potential concerns you have. It can be used. Anti-monopoly legislation or good competition legislation is important to an industry like yours. I would suggest it has cross-border stuff, because it can be used. Anything can and will be used against you in an industry as competitive as yours has to be.

If you do have time, especially if you have that kind of background, I'd urge you to have a look and make sure it addresses your concerns.

Thank you.

The Chair: Mr. Nantais, do you wish to respond?

Mr. Mark Nantais: I would add to it, Mr. Strahl. One, CVMA will be putting forward a submission to the committee looking at the Competition Act.

Secondly, you raised a very interesting question. It's something we will take back and give consideration to.

The Chair: Thank you very much.

I should let members know that I believe a large number of the companies are members of the BCNI. They did appear before the committee already expressing some concerns about certain aspects.

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

Mr. Joseph Volpe: Thanks, Madam Chair. I have a couple of very brief questions. They may not even be completely on topic.

I wanted to express my appreciation for the frankness and openness with which you addressed the border issue this morning. It certainly has given me a better sense of where the industry is coming from.

I took note as well that Mr. Armstrong infused a note of optimism in the presentation in that sales might go up soon. He expects it, and I guess he is working towards it.

I didn't notice the same level of optimism from Mr. Nantais. Perhaps it's because his focus was a bit different.

Mr. Nantais, when you gave us a comparison of a comparative price analysis, perhaps I misunderstood or misheard you. I thought I heard you say there was a $3,000 or so difference in Canada's favour on an average vehicle. If I heard the figure more or less correctly, it would suggest the Canadian consumer is at a great advantage when it comes to purchasing a typical North American-assembled or -made vehicle relative to their American counterpart. Did I hear you correctly?

Mr. Mark Nantais: Actually, relative to the purchase price of a vehicle on a common currency basis, Canadians are better positioned. However, once you add the taxes and so forth, you could well be in a converse position.

I want to make it clear, when we talk about comparing average transaction price relative to your personal disposable income, basically we're saying that in 1991 it took Canadians 105% of personal disposable income to purchase a vehicle, whereas an American had to pay 98% of their personal disposable income.

Over the course of the 1990s, it became more favourable for an American to purchase a vehicle. It only took 96% of a person's disposable income, whereas in Canada it went completely in the opposite direction. It went up to 146% of your disposable income to purchase an average vehicle, given transaction prices, despite the fact you are able, on a common currency basis, to purchase a vehicle on average at about $3,100 less than the U.S.

Mr. Joseph Volpe: I know you're comparing statistics, but you're not analyzing, for me at any rate, the reasons why it takes place. I don't mean to ask you to do so right now.

Is it productivity on the Canadian side? I know you didn't want to make the direct implication that it's strictly due to taxes. In fact, is it because in Canada not only disposable income but relative income has gone down while the American income has gone up?

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There are all sorts of factors. Also, perhaps the profit margin on the Canadian side is a little more tempting for the manufacturers than it is on the American side.

I don't know whether any or all of these factors come into play, but because you raised these issues when we were talking about border crossing as a most important factor in inducing investment on the Canadian side of the border, I thought I'd just raise this one. I need to have a better or clearer understanding of what some of the dynamics might be. I don't mean this as a negative comment, because I really do appreciate the way all of you have addressed the border issue this morning. It has been very, very good.

Perhaps this is a question for another time when we're dealing with a different issue, but I welcome your reflections on it, nonetheless.

Mr. Michael Sheridan: Perhaps I can take a stab at it.

I think we should look at it in two segments. There is a vehicle market in Canada, that is, the selling of vehicles to Canadian consumers; then there's a production of vehicles in Canada that are primarily exported out of Canada to the United States, Mexico, and other countries around the world.

But if we look at the vehicle sales to Canadians, we find that across the board, from all manufacturers in Canada, on vehicles we sell to Canadian consumers we earn lower profits because our prices to the Canadian consumer are lower than they would be otherwise in the U.S. market. And that's just a function, I believe, of the fact that Canadian consumers have less disposable income to purchase vehicles.

This has manifested itself in a few different ways. For instance, in the 1990s there were fewer vehicles sold in Canada than there were in the 1980s. That's something unique in our industry. Most markets around the world actually sold more vehicles in the 1990s than they did in the 1980s, but in Canada fewer vehicles were sold, largely because the disposable income of Canadians lay dormant for much of the 1990s. We actually saw it decline from 1990 right down into 1994-95, before it responded in the latter part of the 1990s.

Mr. Joseph Volpe: You could help me understand that a little better if you gave me an indication of the per capita ownership of cars in Canada relative to the United States or France, say.

Mr. Michael Sheridan: Well, versus the United States, where the average of vehicles per household is around two, in Canada it's about 1.6.

The segmentation in Canada has also shifted towards the smaller vehicles. The basic small car, for instance, makes up almost 60% of the car market. It's about 30% in the United States. So segmentation has shifted in Canada towards smaller, more affordable vehicles, and the number of vehicles per household is actually lower in Canada than in the United States.

I'm not sure if that's helpful

Mr. Joseph Volpe: Well, it's interesting, and thank you.

Mr. Stephen Beatty: If I could just add to that, there are also two impacts, one on car manufacturers themselves and one in terms of general impact on the economy.

Obviously, if we have reduced margins in Canada, our ability to put money back into new investments is also affected, and so the affordability issue is something that's been front and centre for everybody in the auto sector over the past few years. I will also say that obviously, as car manufacturers, we're trying to compete with each other in the marketplace. One of the things we all are desperately trying to do is reposition our vehicles to make sure they are more affordable to Canadians and to give us a benefit in the marketplace.

It's why, for example, when we launched our new Camry this September, we brought out a vehicle that between price reductions and new content was about a $3,000 better value than the car it replaced. But there are very practical limits to what you can do and how you can make those improvements in manufacturing and pass cost advantages along to consumers.

So we're moving as hard and as fast as we can to deal with an affordability issue from our side. But it is one of those larger economic issues that we're going to have to address if we want to look at the long-term health of the sector—from both sides.

Mr. Joseph Volpe: I'm going to tell my kids that we'd better start working towards the lower half of that average, at my house anyway.

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

We're now going to move on to Mr. Rajotte, please.

Mr. James Rajotte: Thank you, Madam Chair.

I want to thank all the guests for appearing today and for their presentations, particularly for the fact that they made some very specific recommendations. I very much appreciate that.

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I appreciate it particularly on the border security and border access issues. The fact that you have all made very strong statements about keeping the border open, keeping the goods flowing, about issues like shared databases, and having security cards for frequent travellers—I think these are excellent ideas we should follow up on.

I want to follow up a bit on what Mr. Volpe was asking about. That is that in Canada fewer cars were sold during the 1990s than the 1980s. If I heard you correctly, we are the only OECD country in which that happened—which particularly struck me—and this was then related to the amount of personal disposable income in Canada. I believe the figure in the U.S. has gone from 98% to 96%, while in Canada we went from 105% to 146%.

Do you or your associations or industries have an analysis of why personal disposable income fell so much in Canada?

Mr. Michael Sheridan: Over the course of the 1990s the disposable income didn't fall in nominal terms; it increased, but it didn't increase as rapidly as in the United States. As Mark indicated earlier, we applauded the government for moving on tax reduction initiatives in October of last year—well timed in our industry, given the softening that occurred starting in October. The improvement in disposable income related to the improved tax position Canadians found themselves in was helpful in buttressing any decline expected in the industry in 2001. So part of the issue of disposable income involved taxation, which was addressed in part in October of last year.

Mr. James Rajotte: What would the other parts be, if part of it is related to taxation?

Mr. Michael Sheridan: Employment growth is part of it. If you look at the level of employment in Canada versus the U.S., even at 7% in Canada our unemployment rate is significantly higher than the rate in the United States. Productivity clearly is an issue as well.

Mr. James Rajotte: Does anyone else want to comment on that?

Just following up on that, then, the tax cuts that were recommended were mainly on the corporate side. As you mentioned, there were both corporate and personal tax reductions in the October budget statement. Obviously there are people on this side who feel we should deepen and move faster on those personal tax cuts, as well as on the corporate side. Is this something you see as necessary, particularly given the impact of September 11?

Mr. Gerald Fedchun: I think the most important tax cuts for industry's benefit are related—certainly from our point of view—to some of the research and development costs. The industry has been restructuring, so that more research and development is actually coming down to the parts manufacturers from our customers, the OEM. They're doing outsourcing not only of particular parts and modules but of the engineering development that goes with them.

For the Canadian parts industry to pick up its fair share—or, as I like to say, hopefully more than our fair share of that—we'd need to do more R and D. So we're very much looking for the government's initiative in keeping R and D tax credits in place, or even enhancing them. I know right now they're very generous.

AUTO 21, which is a new initiative being sponsored by the federal government, is something we have been looking forward to, because it's another way for us to do more R and D in Canada. We're very much in favour of it, so we may continue to have more than our fair share of production and the engineering that goes along with it. The engineering also brings the high-value jobs and the better-off, more technically qualified people who go with it.

Mr. James Rajotte: Just following up on the R and D tax credit, this summer I had the opportunity to visit some of the high-tech companies across Canada. They said much the same thing, that they were very much in favour of the R and D tax credit. One of their concerns was that in Canada the system of applying the tax credit changed, and the regulations surrounding it changed, so that they would have to adjust each year. They found it was very hard to deal with from that perspective. But it was also then less stable and, as they were planning years ahead, it was harder to plan because the government changed the tax credit. Have you found the same experience in your industries?

Mr. Gerald Fedchun: Back in 1998 the then Minister of Revenue had a major R and D tax credit seminar in Vancouver, and we found it was very helpful. Out of that we got an industry-government committee together, and we actually sat down, from the automotive group, to say, “Okay, this is how we do R and D. How does that fit in with your administration?” The government was very helpful. We came up with a new set of guidelines from the automotive industry side, so there is predictability.

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That was one of the few times we actually worked together with government and got some really good results for the Canadian economy. We thought that worked very well and we were very pleased with that.

Mr. James Rajotte: Thank you.

The Chair: Claude Drouin.

[Translation]

Mr. Claude Drouin (Beauce, Lib.): Thank you, Madam Chair. And thank you to our witnesses for their presentation before the committee this morning.

We are all aware following the events of September 11 of the importance of security and also of the problem it might cause regarding the free flow of traffic at the border.

Mr. Fedchun, you mentioned the fact that we are importing more parts than we export but you said in your introduction that we would be obliged to open warehouses on the other side. It seems to me that it should be the same for the Americans, that they would also be obliged to have warehouses here in our country. Surely they have the same problem as us.

[English]

Mr. Gerald Fedchun: That's absolutely correct, and that's why we have significant allies in the United States, to make sure the border stays open. We are a fully integrated industry. Canada has a net benefit from the automotive sector because we import more parts than we export, but we export way more finished vehicles than we import. So we have a balance of trade in our favour with the United States in the automotive sector as a whole. But there are a lot of people on both sides of the border for whom this is a very important issue.

[Translation]

Mr. Claude Drouin: Yes, I think it is important. In your presentation, you mentioned the new technologies and the way to facilitate border passing or transportation of parts or equipment. I think you will have to work with our American companies on the other side and to make proposals to both levels of government so that goods pass through the border.

That was my comment, Madam Chair.

[English]

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

I want to go back to a couple of earlier comments. Ms. Torsney was asking questions about the proposed manufacturing incentive tax credit and she talked about what the cost of it would be. I'm wondering what the cost of not doing something like that would be. I don't know if Mr. Jure can speak to this or not.

I look at what's happened in Windsor, as an example, with the DaimlerChrysler facility that was put on hold in January. There's a huge cost in developing or redeveloping that type of facility, yet it's been put on hold. I see something like this as an incentive that in turn would create or keep thousands of jobs in Canada. Maybe I could have the opposite....

Mr. Doug Jure: I guess if you were to look at DaimlerChrysler's situation in the third quarter of next year.... Since our restructuring, almost 5,000 employees have left the company through either early retirement or direct layoffs. Certainly two plants have been shut: the Western Star Trucks plant in Kelowna and the Thomas Built Buses plant just south of London. Then there's the question about Pillette, which still does not have a product mandate.

I guess our point is that like the border issue, as a multinational German-American company, there are certain incentives that must be in the play book. We are competing with the individual states in the United States, which are quite generous in their incentives, particularly with respect to training, grants, and incentives of that nature.

So the recommendations we're making with respect to these taxes and making it easier and less costly to do business in Canada are all part of the mix. They do have an influence. As Michael said, decisions are made every day, and we're facing an industry that has horrendous overcapacity.

In the case of Freightliner, the plant in Portland is not closing, but the plant in British Columbia is closing. Perhaps that's an indication of how governments, both federally and provincially, must be in the game.

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The Chair: Just to pick up on that, when we talk about the impact of the border and look at the decisions, it's very difficult to get an actual grasp of exactly what's happening.

I listened to Mr. Beatty talking about their plans for the next several months, and I believe the automotive industry—you can correct me if I'm wrong—makes plans for three or four years down the road. So certain plans will continue to be implemented because those decisions have already been made, a lot of those costings have already been done, and those investments have commenced.

When the American economy rebounds in three years' time and we sit back and say, oh my gosh, I wonder what happened, I'm really concerned that the automotive companies.... I hear from the parts guys and the mould makers in my riding, who are quite concerned that their customers aren't coming over. So when we hear about passenger vehicles and commercial vehicles, I think there is a misunderstanding. In those passenger vehicles are business people, not just tourists.

As much as tourism has been impacted in Windsor, I know the business community has been impacted. Those vehicles that aren't coming over belong to people who make decisions to buy parts or use our mould facilities. They're saying they can't come to Canada right now; the waits in Canada are one thing, but they don't know how long it will take them to get back into the United States. There is a constant wait for passenger vehicles to get back into the United States, sometimes as much as two and a half hours, depending on what time of day you cross.

I'm very concerned about this Thursday and what that's going to mean. We know the Americans are in the process of authorizing additional personnel, but it will take nine to twelve months to train them and have them at the border facilities. I'm not sure who's going to carry the cost of the National Guard. That's the debate that's taking place right now in the United States.

They're just as focused as we are on security, because it's not only machinery and equipment and who's crossing the border. Your security is threatened by your economic viability. As much as Washington is really focused right now—and rightly so—on what's happening, the daily threats, and the anthrax situation, they also recognize their economic viability is a threat to their own security.

We have to work on this together and change this message about the border. The border is a priority because it's also a security priority. My concern is that as these decisions are being made, it's really hard to get statistical information. As Mr. Sheridan pointed out, investments are being made on a daily basis. I'm sure Mr. Beatty would echo the same sentiments as Mr. Jure and Mr. Thomas, but how do we get those numbers? How do we get that information up the ladder to the people at the top making the decisions? We're trying to deal with them, influence them, and suggest to them that the automotive industry is in a bit of a turmoil right now because of the border. How do we get that information out when some of these decisions are strategic investment decisions that you obviously don't want your competition to know about? I'm not really sure how we get the right information to the people.

Are there any comments on that? Mr. Jure.

Mr. Doug Jure: I can start by saying that on the information I relayed earlier about the degree of border traffic, I don't think Ford or GM is going to be terribly surprised that we're one of the largest users of the Ambassador Bridge. You just have to look at the trucks. But the information I alluded to here has been prepared in Washington, and as we discussed earlier, our offices in Washington are passing this information up the line in the American bureaucracy. Certainly there's no question about that. That information was also relayed to Minister Manley when he went to Washington to meet Governor Ridge, I believe.

So we're doing our part there, in terms of a multinational company exchanging the information. But I think we also have to define what security is. There's high-risk security and there's low-risk security, and we're the low-risk security. The strategy must address low-risk security with respect to this industry.

The Chair: Are there any other comments? Mr. Fedchun.

Mr. Gerald Fedchun: You commented about the individual going back and forth across the border. I think that's one of the things that can very much be facilitated by using a high-security pass system for frequent travellers, so they can have a separate line and be able to come and go very quickly. That's one of our priorities to get implemented because we have a tremendous number of people—engineers and sales staff—going back and forth across the border, because it's so integrated. In order to be able to do cross-border business with goods, you first of all have to design the good and sell the good, and those are the people doing that.

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The Chair: Mr. Beatty.

Mr. Stephen Beatty: Madam Chair, there are a couple of things I'd comment on. Obviously, in our introductory remarks, we made the point that clearly those issues of security and transfer of goods across the border have to be addressed. But the bigger question, which is the one you've raised, is where is Canada going and where is investment in the sector headed in light of September 11 and the conditions after September 11? My comment would be that in many respects it hasn't changed the decision-making that has to take place in the sector. There are restructurings that take place within any major economic sector. There are companies that will grow; there are companies that will have to retrench their investments.

The challenge for Canada, and I can say it on behalf of Toyota or any other global corporation that looks at Canada, is to make this the very best place, in an overall economic sense, in which to invest. We're convinced that Canada is a good place to be, and that's why we are here manufacturing. And I think that's a message we have to take back, not just to parent corporations of the companies represented here, but to many other companies around the world, and really be as aggressive as we possibly can after September 11 in trying to get the message out to potential investors that Canada remains a safe and secure and economically viable place in which to conduct business. That's the real task after September 11, to make sure we redouble our effort to make this an attractive place to be. I say that as a Canadian, not as a representative of a particular company.

The Chair: That being said then, for the automotive industry it's very important that the border function efficiently and effectively. Yesterday there was a meeting of the Bridge and Tunnel Operators Association in Detroit, which I attended. They met earlier on Sunday and devised a seven-point plan, part of which is to require mandatory pre-approval for all commercial traffic. That will help ensure the security and facilitate crossing the border. I would assume this is something the automotive sector would be in agreement with to move this issue forward.

Mr. Gerald Fedchun: That's one of our most important aspects—pre-approval. One of the security issues is that at the moment a truck goes from Canada to the United States and goes across the Ambassador Bridge. It doesn't get inspected until it gets to the other side. So some terrorist who really wants to take the bridge out has no problem at all; no one's going to challenge him before he gets onto the structure. Of course, once the structure goes down, we're in real trouble.

So what we really need from a security point of view, as well as from a customs point of view, is to pre-approve before vehicles get on structures.

The Chair: In fact, one of the other points that is part of their plan is to reverse customs and inspection, which would move the United States customs and immigration to the Canadian side and vice versa. As of yesterday, and I understand by Wednesday, all of the bridges and tunnels in Ontario will be operating on a system where they will not queue any longer on the bridge or in the tunnel; they will now queue on the plaza or on the streets themselves, which is going to possibly create some issues in the cities that are affected. So we really need to move these issues along much clearer and faster.

I believe Britain and France already have that, where they would do the pre-inspection before entering the tunnels.

Mr. Gerald Fedchun: They do.

The Chair: I don't think this is novel, but I do think it's probably a direction that Canada and the United States should look at to ensure the safety and security of those facilities, as well as the people who are on them and in them, and the goods that are travelling as well.

I'm not sure if there are any other questions. I didn't see any other questions to be raised, but I do want to ask for a final comment from everyone, if you have any other items that maybe we've missed in our discussions here today, or if you want a final word. We do appreciate you coming here. We believe the border is vitally important to the automotive sector, and I also believe it's very important that we continue to recognize some of the issues you've raised, such as those on research and the necessity for investment.

AUTO 21 was a good start, but obviously there's a lot more we could be looking at and doing in Canada for research. And there's also the issue of the infrastructure leading up to our facilities, for example, the bridge in Windsor. Those are other things we could and should be looking at.

With regard to the message today, if there are any final comments on the automotive sector, I'd appreciate hearing them.

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Mr. Fedchun, do you have a comment?

Mr. Gerald Fedchun: It's simply to say that if we don't keep the border issue as a priority, our industry could easily be the same size it was in 1991 very quickly, which is only $12 billion versus $32 billion.

The Chair: Mr. Nantais.

Mr. Mark Nantais: My parting comment would be that we cannot be complacent. We cannot take for granted as we move forward.... What we're doing in our industry is to ensure.... And I didn't want to be at least perceived as being overly negative in terms of forecast because I think we're still a pretty healthy industry in Canada. Will it be the same industry, as Gerry points out, that we currently have in maybe five or ten years from now? I suspect it could be radically different, because things are changing and we have to keep our eye on the bigger picture. The border or crossing issue is just one of the issues one needs to consider here in terms of attracting new investment going forward.

I'll close with that remark.

The Chair: Mr. Sheridan.

Mr. Michael Sheridan: We hearken back to 1965 with the beginning of the Auto Pact. We produced 700,000 cars and light trucks in Canada and we sold about 700,000 cars and light trucks in Canada. Export and import were very small numbers. In the year 2000, we produced almost 3 million vehicles as an industry in Canada and we consumed about 1.5 million, and about 85% of what we produced we exported south of the border and to 40 or 50 countries around the world.

So the industry has been successful as a result of really having a transparent border. It's something that has not only driven our industry but the parts industry along the way.

As Gerry mentioned, we started in 1965 with $500 million in parts sales and now we're well over $30 billion, so the success story was largely driven by the fact that we integrated the auto industry throughout North America, the requirement being a seamless border. It's something we should pursue as a long-term goal.

The Chair: Mr. Jure, do you have anything?

Mr. Doug Jure: I want to build on that comment by noting that this issue also involves infrastructure, which you alluded to. Certainly we can improve the border-crossing procedures, but if we still have backups because our trucks are going down through Windsor on the Huron line, this is a combined commercial-residential area and the community just cannot sustain that traffic. So both the federal and the Ontario governments have to look at well-overdue infrastructure developments.

The Chair: Thank you.

Mr. Armstrong.

Mr. Robert Armstrong: I want to reiterate that I hope our government has a coordinated effort, a team, that works with the Americans because—and I hope I'm totally wrong—we could be in a lull before the storm.

The Chair: Mr. Beatty.

Mr. Stephen Beatty: Thank you. I have two comments.

One is to thank you very much for the opportunity to appear here and to have the opportunity to share some thoughts with you.

The other one is that I think everyone in the room shares the same concerns or views about the need to look at the border and security issues. The other caution I would give is that we not overreact to this. The fundamentals are still pretty strong in Canada, and we have to look not just back to pre-September 11 but forward to how we build the sector and the economy further.

The Chair: Mr. Thomas.

Mr. Art Thomas: Thank you very much.

I'd like to mention to you that Honda as a company really is employing a North American strategy, so the borders are obviously critical to us in many ways. But at the same time, our growth in Canada has been exciting and continues to be positive. So growth in sales, export, production capacities, and of course taxes, have been a good thing. We would encourage the government to continue to look at ways to create an economic climate in Canada that sustains this period of growth for us, and hopefully for all of our industry associates.

Thank you very much.

The Chair: I want to thank you all for joining us today. It's a very important sector to us. The meetings we're having this week are very important obviously to the Canadian economy and the Canadian people, and we know the role you play.

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I would like to assure you, having accompanied Minister Manley to Washington last week, that in his meeting with Governor Ridge he did talk about the importance of our border and our security at the border points in moving our trade. As you heard earlier today, Minister Tobin has very clearly told everyone that the border is a priority for us as a government. So we'll continue to work with you to ensure that the automotive industry not only is strong but grows in Canada. That's our goal as a committee.

Thank you very much. We're going to adjourn until 3:15 p.m.