Thank you very much, Mr. Chairman. I welcome this opportunity to appear before your committee.
I apologize that we have no written brief. Something fell between the cracks and we were not aware until Monday morning that a presentation was asked for. I was sitting happily by the pool in Florida when I was asked to make a presentation.
I will speak for the Shipbuilding Association of Canada, for which I'm a past chairman and member of the board of directors. I will also represent Irving Shipbuilding Inc. I retired as vice-chairman a couple of years ago, and I still do work on a consulting basis. I will also briefly talk on behalf of Atlantic Towing Limited, which is another Irving company.
For brevity, when I speak for Irving Shipbuilding Inc., I'll call it ISI, and when I talk about the Shipbuilding Association, I'll call it the association.
It has to be five or six years ago that we started talking about EFTA. It's been a long time, and I have been involved since day one in the discussions.
The positions of the association and Irving are basically the same. From day one, we said the Norwegian industry has been totally supported by its government to build up a tremendous infrastructure. It is a good industry with a lot of government help, and now they're looking to see what else they can do.
So our position from day one has been that shipbuilding should be carved out from the trade agreement. We butted our heads against a brick wall for quite a number of years on that and we were told there is no carve-out. If the Americans, under the Jones Act, can carve out shipbuilding from NAFTA and other free trade agreements, as I believe the Americans are doing today with Korea, or have done, why can Canada not do the same?
Looking at NAFTA, we feel we were sold down the river on NAFTA. We cannot build for American shipowners, but American shipbuilders can build for Canadian shipowners and import the ships into Canada duty-free. There has never been such a one-sided agreement, to my knowledge. It's totally ludicrous that they can build for Canadian owners, come in duty-free, and we cannot build for American owners. On the repair side, it is even worse. We used to be able to do some repairs for American Jones Act ships. Today it's very, very difficult. There are a lot of restrictions, and that work has basically disappeared.
So I think you can understand why we were all for carve-out.
The Shipbuilding Association reluctantly took this position. After beating our heads against the wall, we said, “Okay, you're telling us that categorically there will be no carve-out?” The bureaucrats we were dealing with at the time said, “Quite definitely.” We then took the attitude as an association that half a loaf is better than nothing, so we started the discussion and said, “Since you're telling us that, then we need a long phase-in period.” We talked for fifteen years, and to the best of my knowledge I think the fifteen years has been achieved. We don't like it, but if it's the best deal that could be done, we have to stick with it.
The association was quite firm on the point, however, that their agreement on a phase-out was contingent on getting a new shipbuilding policy. Now, the new shipbuilding policy we asked for was that the Government of Canada continue the Buy Canada policy for Canadian government ships, and we are told that is still the situation. We still have the Buy Canada policy. That's excellent, as there are quite a number of programs coming in.
But we went further. We have the structured financing facility where there is an interest buy-down for potential owners. Canadian owners also have access to the accelerated capital cost allowance, where you can depreciate a ship basically over three years. But it's an either/or situation, and it's totally unfair to Canadian shipowners. If we build a ship for a foreign owner, they can get access to the structure and financing facility and get an interest buy-down. They can then go back to their own country and get accelerated depreciation, the same as you do in Canada. So they get a ship that they can depreciate very quickly and beneficially to them, and the charge-out rates then go worldwide when they're putting their ship to use.
When a Canadian owner comes to us, we tell them they can get the structured financing facility, but if they take it, they don't get the ACCA, and therefore the depreciation isn't over three years, it's over twenty years.
So you penalize, by the introduction of this, the Canadian owners. A Canadian owner might be then better going overseas, where he can get reasonable financing. But then to bring his ship into Canada, where he currently pays the duty, he's no better off. So you're penalizing the shipbuilding industry and you're penalizing the Canadian owners.
The Shipbuilding Association agreement to the phase-out was contingent on the Buy Canada policy, combining SFF and ACCA. Since that has not happened, the Shipbuilding Association is back to the policy of carve-out. We've said that since day one. However, we're told it's not in the agreement. You've gone with a 15-year phase-out.
Quite some time ago, we were told that the only thing holding up an agreement was the shipbuilding industry. Everything else had been agreed. The shipbuilding was holding everything up. One must ask oneself, why is shipbuilding holding it up? Who wants shipbuilding? Who are the EFTA countries that want shipbuilding in the agreement? I'm quite sure it doesn't matter to Greenland, Liechtenstein, Switzerland: it only leaves Norway.
Somebody should ask themselves why Norway is so hell-bent on getting shipbuilding into EFTA. There's only one answer: they want to come in, they want to sell ships in Canada, and they want take away the ships we are building. More than that, Norway owns one of the biggest offshore supply vessel fleets in the world. They look worldwide in terms of where they can put these ships. These ships were basically built at a time when they got subsidies. They've been depreciated. They can therefore put them into Canada at charter rates that the companies in Canada cannot meet.
Now, that's not going to affect the shipbuilder directly, but it's going to affect, for example, Atlantic Towing Limited. Since 1995, Atlantic Towing, which is an Irving company, has invested $317 million in an offshore supply boat fleet. It was not under subsidy and they didn't get the SFF on any of them. The financed the fleet themselves. They now have to compete against ships, if we go ahead with this, where the charter rate will beat the hell out of them. Those ships were built with subsidies and were written down.
We deal a lot with Norway. Funnily enough, we built these offshore supply boats to a Norwegian design. We bought the equipment in Norway. We say ourselves that we have excellent relations with the Norwegians. We could have designed an offshore supply boat, but they build the UT722s. If you're in the oil business and you're chartering supply boats, you'll know--everybody in the business worldwide will know--what a UT722 is. We thought about it, and thought, okay, we'll design a Halifax 123. But when anybody would go to charter it, we knew they would say, “What the hell is a Halifax 123? I've no idea what that ship does. I like the UT722.” That's the reason we went to Norway, we bought the design, and we built them.
As I said, we're very good friends with them, and we don't mind doing that, but now we feel that they're putting the boots to us. Not only do they want us to buy their equipment, they want to build the ships in Norway, put their own equipment on them, and then send them to Canada. I think the government has to think a long time before it does that.
The other thing there has been a lot of discussion about is Norwegian content. The negotiators had actually negotiated that a vessel built in Norway, with 35% Norwegian content, would qualify as built in Canada. That was the most ludicrous thing we had ever heard. They got the numbers mixed up. It's now changed, I understand, to 65% Norwegian content. But even at 65%, there is the potential that Norway can build the hulls in low-cost European countries, import them to Norway, put their equipment in them, outfit them, send them to Canada to a Canadian owner, and qualify for the reduced duty. Those would qualify as Norwegian-built ships.
A Norwegian-built ship should be 100% built in Norway. Sixty-five percent is a lot better than thirty-five percent, but it's still debatable. There is the potential there for them to go to Poland or someplace to build low-cost hulls.
For us, going to Poland is out of the question. For one thing, we don't employ these guys. For another thing, towing a dead hull with no equipment or power across the Atlantic is just out of the question. It's not feasible or cost-effective either.
What happens if this goes ahead?
Shipbuilding in Canada is in a precarious situation. If you go back to the early 1980s, we had a big viable industry. In about 1986 we started with a shipbuilding rationalization program. You have Burrard on the west coast. Yarrows closed. Collingwood closed. MIL and Sorel closed. Vickers in Montreal closed. A big part of the capability was taken out.
What we are left with today is Washington Marine on the west coast and a few other smaller ones. There is Port Weller in the middle, which is owned by Upper Lakes Shipping, and its future is somewhat in the balance and it was recently in bankruptcy. Jack Leitch from Upper Lakes has bought it back, and hopefully it's going to stay in business. You have Davie Shipbuilding in Quebec, which has been in bankruptcy four times that I remember in the last 30 years. There is a new owner, and funny enough, the owner is Norwegian. I think that's pure coincidence, by the way. We're not sure of the future of Davie. It's very busy right now, and hopefully it's making a strong comeback and it'll stay in business. Then you have the Irving Group on the east coast with Halifax Shipyards and East Isle in Prince Edward Island. You have Marystown in Newfoundland. That is basically the industry.
For example--and I apologize for not having any handouts--if you look at the Halifax Shipyard and East Isle, between them right now there are approximately 600 or 700 employees. The average payroll runs to $30 million. We pay $11 million a year in CPP, EI, and others. Halifax Shipyard purchases locally $35 million in goods and services, basically in Nova Scotia, but also in other parts. East Isle has purchased $3 million in Prince Edward Island. If you're in Toronto $3 million in purchases doesn't get much attention, but in Prince Edward Island $3 million certainly helps. If you look at Atlantic Towing, they employ 300 people. They have an annual payroll of $17 million, pay $6 million CPP, etc., purchased $17 million, and as I said, since 1995 have spent $317 million.
There is a group in Quebec, and we got this information from Gordon Bain, who is the president. He would be affected like East Isle and like Atlantic Towing and Secunda. He employs 350 people. He has an annual payroll of $18.7 million. He pays $4.6 million in payroll taxes and spends $20 million a year in purchases of local goods and services. Gordon has invested $50.6 million in that company since 1995.
There's a big investment in the companies. If they were to disappear, we would be in dire straits.
There's one other major point that must be considered, and I think the Department of National Defence has finally come around to this concept. It started, I think, three years ago at an outlook conference in Vancouver, and I gave a speech about it. Without new construction, the ship repair industry will not survive in Canada. Ship construction attracts the engineers, naval architects, and technicians. Ship repair is difficult. The Japanese call it KKK. It's dirty, dangerous, and difficult. You need ship construction to advance the technology, get the investment, and get the people that you require--the engineers and technicians.
If there is no new construction in Canada, it's quite likely the repair will disappear. If there is no new construction, the Halifax Shipyard will likely close. That affects these fellows, it affects the payroll; but worse than that, we are neighbours with a fleet maintenance facility. We have a common boundary.
When I talk to the admirals, I say, “Do you realize that if we disappear, we disappear for good? What are you going to do with your frigates?” They answer “Yes, but....”
You're not going to Spain, you're not going to Portugal, you're not going to the U.K.; the logical choice is to go to the U.S. We've got 12 frigates; the U.S. has 57 FFG7s. If there's any difficulty in getting repair, you know who's going to be at the head of the line. It's not going to be us.
There is a growing concern amongst the senior brass at DND that the ship repair industry must exist. It's a strategic resource. The Americans, the U.K., France, Germany, and Australia all recognize it as a strategic resource.
We have to do something to ensure shipbuilding continues. The easiest thing is to carve it out from EFTA. And if you do one thing, convince your colleagues in government to extend the ship financing facility, make it available to Canadian owners in combination with the accelerated capital cost allowance, and you will have as vibrant an industry as exists.
There's nobody here from the Great Lakes, but the Great Lakes today are in a terrible situation. The average ship is over 30 years old and has to be built soon.
My recommendation is to carve out EFTA, combine SFF extended, and combine it with ACCA.
Thank you very much, gentlemen.
Andrew did a pretty good job in overviewing where the industry is at, and I'll try to stay away from repeating what he said.
Again, thank you for having us here. Because of the short notice, we don't have anything prepared by our union, but it would like an opportunity to put together a formal presentation to this committee. Hopefully, this committee can make time for that.
I am here on behalf of the workers in the marine sector of our union to express our opposition to this agreement. Canadian shipbuilders find themselves competing for work in domestic and international markets on far from a level ground. Other governments, Norway for one, have supported their shipbuilding industries for years and have built them into powers, while Canada has not. We have had little protection, and what little protection we have left is a 25% tariff on imported vessels into Canada, which is being washed away by government daily through agreements such as this and the exemptions being negotiated with companies.
The government—in this case Minister O'Connor—has stated that the shipbuilding industry is of strategic importance to the sovereignty of this nation. And Peter MacKay, in a press release on June 7, stated that the government recognizes the challenges faced by the shipbuilding industry and is taking real action to help it in both the short term and long term, and that as a marine nation Canada needs a viable shipbuilding industry to support our sovereignty. Maxime Bernier has said the same thing in talking about a renewed approach to assist in the maintenance of domestic shipbuilding and ship repair capacity, which supports our sovereignty as a nation.
With all these statements, you'd think the government's action would be to put into place national strategies to ensure a viable shipbuilding industry, but we have seen no sign of that. What we have seen is the EFTA agreement, which we feel will further devastate the shipbuilding industry.
So I urge you to take the opportunity before us with procurement to revitalize this industry. This industry provides highly skilled jobs, often in areas of economic depression. The shipbuilding industry supports key industries such as transport, fisheries, tourism, and oil and gas—and perhaps most importantly, as Andrew pointed out, the industry is critical to the defence capabilities of Canada.
The reasons are clear for supporting the shipbuilding industry. I just think this committee and government have to find ways of doing that. As yet, we still have to see something that actually works for us.
There is a large phase-out period in this agreement, and we all recognize that is a benefit; but it's only a benefit if there is a way for us to adjust. Asking workers to adjust to a global market is unfair, because there are actually things that we cannot control. In some of the countries that we will be competing with internationally, the workers themselves are the subsidy. There are not human rights in some of these countries; there is very little health and safety. It's a totally different game that some of these countries are playing.
But to get back to this agreement, the Norwegians have built their industry into a very powerful industry.
So this EFTA deal is a bad deal for Canada. I'd love to see someone answer the question, what is Canada going to get out of this agreement? I know we're going to destroy our shipbuilding industry, a multi-billion-dollar industry in Canada. It's on its last legs now and needs a real boost. We have that opportunity in front of us, but whether we take it or not is the question.
Again, the one question I have is, what is the benefit to Canada from this agreement? The last thing I would like to ask is, will this agreement be put before Parliament, as Minister Emerson has said, for a full debate and vote?
On that note, I will close my statement. Thank you.
Thank you very much for the opportunity to present to the committee by video conference. We appreciate it.
We haven't had a lot of time to look at this trade agreement, but it's clear that it's one of a series of bilateral trade agreements that Canada is pursuing. They're all in conjunction with the larger trade agreement, the WTO, so it's important to look at this in the context of the WTO.
The bottom line for measuring success or failure of any trade agreement from the farmers' perspective is whether that trade agreement actually raises farmers' net income. A trade agreement that boosts exports but results in lower net farm income is not a good deal for Canadian farmers.
That being said, there is actually one positive thing in this agreement that I've seen, and that is on durum wheat. It's perhaps the only positive aspect of this trade deal that I've found. Because durum exports are made through the Canadian Wheat Board, the farmers of western Canada are the direct beneficiaries of those sales and more money is going right back to the farm gate. If those sales were made through private grain companies, there would be considerably less going back to the farm gate. So an increase in sales as a result of lower tariffs in some of these countries will actually translate into increased direct revenue for farmers.
Of course, the Wheat Board has done a tremendous job marketing durum in Europe. You're probably aware that the EU is our biggest customer already for durum wheat. Canada grows only a little over 12% of world durum production, but we actually ship 51.8% of durum globally.
Right now Switzerland isn't a big market for us. From the best estimates we've seen, we only ship about 1,500 tonnes, and the tariff rate is already very low. Norway is a little bigger, and right now we export no durum to Norway. So if we are increasing those exports, that will probably help us.
But it's important to keep in mind that Canadian wheat and durum exports are a big draw for our overseas customers because of the consistent quality and reliability of those grains. That's due to the Canadian Wheat Board sales regulations that are in place, the Canadian Grain Commission, and our system of kernel visual distinguishability.
Both of those agencies are under severe stress right now. The Canadian Grain Commission, under Bill , is faced with the loss of inward inspection. As you're probably aware, the KVD system, which is the key cornerstone of our grain quality system, is going to be phased out on August 1, 2008. If that happens, there is a real concern about whether we're going to be able to keep those markets. So even if we gain something with these duty tariff reductions, we may lose many millions more if we lose the Canadian Grain Commission and the Canadian Wheat Board single desk.
I was a little surprised, in reading some of the transcripts, that no economic analysis has been done on the implications of this trade deal. I think that speaks volumes. We've seen a similar lack of economic analysis in Bill , which will change the Canadian Wheat Board Act and the Grain Commission. We haven't seen any economic analysis by the government on what will happen to farm incomes if those two agencies are weakened in any way.
But the most critical and highly negative aspect of this deal, from our point of view, is its impact on supply management, for example, in the dairy industry. It's true that our access commitments remain in place for imports of certain commodities, as specified under the WTO agreement, but the tariff rates on some of those imports have been dramatically lowered, some of them to the point of elimination entirely.
It's good when the tariff rates on our exports are reduced. It's another matter when we see tariff rates on imports of dairy products, for example, coming into Canada reduced.... I think the Ag Canada representative, in early March, pointed out that, for example, on butter, under 4,000 tonnes of butter coming into Canada, which is our access quota, right now under the WTO--that's a 7% tariff. Under this deal, that 7% goes down to 0%. That is, without a doubt, a tariff cut from 7% down to 0%. The amount that's coming in stays the same, but the tariff rate is actually reduced.
That is a key point, because what that does is effectively facilitate access to the Canadian market for imports of dairy products. We have to keep in mind that the more we open up our market to imports, the more we shut out Canadian producers from their own domestic market. As I pointed out, that cut from 7% to 0% for some dairy products coming in is definitely a cut in tariff rates.
A little over two months ago, Agriculture Minister stated in response to a revised WTO draft modalities text, “Canada maintains its firm opposition to any tariff cuts or tariff quota expansion for sensitive products. This represents a fundamental element of Canada’s negotiating position.”
I'll just finish up by saying that that statement from Gerry Ritz was released two weeks after this agreement was signed, when he certainly should have been well aware that there were tariff cuts. So when he said there will be no tariff cuts at the WTO, it makes us wonder whether the government is perhaps putting on a public show of resisting this push at the WTO for reductions in tariffs; but it's actually willing to cut tariffs on a small bilateral trade deal, so how can it refuse to do so on the larger WTO deal?
This agreement actually appears to have set a precedent that may well facilitate ongoing trade measures that weaken Canada's supply management and orderly marketing systems.
I'll conclude with those remarks.
Thank you, Mr. Miller and Mr. Chair, and thank you to our guests. Mr. McArthur, I'm sorry for taking you away from the poolside. I appreciate your bringing your experience and your wisdom to the table.
For those around the table who have had the opportunity, we've been discussing this for about five meetings, I guess, so far. We've had different witnesses bringing different perspectives. So just to clarify some of the comments for the sake of those who weren't here for the other witnesses, we've had Mr. David Plunkett, who's the chief trade negotiator for this EFTA agreement. He works for the Department of Foreign Affairs and International Trade.
With regard to Mr. Pugh, to respond to your comment about the aspect of supply management, it isn't compromised. It's not affected. I quote Mr. Plunkett's comments, “I should note that Canadian supply-managed programs are maintained under this EFTA and were exempted.” So if there's some miscommunication along the way, those are the comments from the chief negotiator. If there's some other information we should know, then I appreciate that, but that's what we've been told around the table here.
Also, an agrifood negotiator with the strategic trade policy division of the Department of Agriculture and Agri-food, Mr. Frédéric Seppey, says:
We mean that an essential element of the supply management system is the predictability of imports. That is achieved by having low duty apply on the volume coming in that is within the access commitment—which is the tariff quota we have in place—and having very high tariffs on the volume coming in that is beyond this tariff quota. In these negotiations the over-access tariffs are not affected. We maintain our over-access tariff on all supply-managed products. Hence, we are maintaining the effectiveness of import control for supply-managed goods.
Our government's very concerned. I know that negotiators had spent....This agreement started about 10 years ago. It's the first free trade agreement Canada has entered into for the last six years, so it's not that it's taken, I guess, like a storm overnight. There's been a lot of consultation and a lot of toing and froing to make sure we get a fair and balanced agreement.
I know there are some challenges within certain sectors.
The other aspect that needed clarifying was a question Mr. Risser asked about the process, and this is something new that our government brought in. It's a treaties-in-Parliament process. How it works is that basically there's a 21-day provision for any of the opposition parties to use one of its opposition days to debate, in this case, the EFTA agreement.
We're just nearing that 21-day period, and the NDP hasn't exercised that option. They said it was of very significant concern to them. They wanted to have more oversight and input, but they haven't chosen to take that option.
There will be an opportunity to debate this in the committee as well as in the House once legislation is tabled by the government. We'll have a full and open debate both at the committee level and in the House, so there'll be ongoing opportunities for parliamentarians to provide oversight and input. I just needed to make sure that's on the record to clarify the process.
I have one specific question for Mr. McArthur. You've been in the industry for a long time. Have you been involved in these ongoing discussions over the years this EFTA agreement is taking to come to fruition?