Thank you very much, Mr. Chair.
Good afternoon, everyone. Thank you very much for inviting the Conference Board of Canada to present today. The topic I'm going to be focusing on is the impact of the rise in the Canadian dollar on the Canadian tourism industry.
Just for background information, this is obviously a very important industry for Canada. The balance of payments, just on our export side, is expected to reach about $21 billion by 2011. Obviously, it's an important contributor to economic activity in Canada.
However, it's pretty clear that the imports of travel services are rising more rapidly than the exports of travel services, and that's at least in part because of the increase in the Canadian dollar.
There are other issues as well, such as the western hemisphere travel initiative, which will eventually require Americans, as you know, to hold a passport if they want to get back into the United States. This is going to have an impact, we feel, on the future of U.S. travel to Canada.
Americans are certainly the most important part of the Canadian travel market, in terms of foreigners visiting Canada. U.S. visitors accounted for 76% of all trips by foreigners who stayed more than one night throughout 2006. Last year—a full year of data—for American travellers to Canada, 76% of trips were for at least one night.
Our forecasts, however, suggest that spending by Americans visiting Canada for non-business purposes—so we're really in a tourism context here—will decline by about $1.9 billion per year between 2005 and 2008. By the time you get to 2008, you'd be about $1.5 billion lower in terms of that activity than in 2005. That's in nominal terms, so in real terms it would be even more substantial. This is obviously serious.
It's very hard to replace those American visitors to Canada with visitors from other countries, simply because of the sheer size of the U.S. market.
Obviously, attracting foreigners to visit Canada, particularly Americans, is going to be very difficult, but we have even a greater issue with respect to Canadians leaving to travel abroad, what we call travel imports. We are looking at about a 25% increase in Canadians travelling abroad—in terms of their spending, now—between 2007 and 2012.
If you do the math, the result is that if you look at the external trade deficit on travel, it should go from about $6.7 billion in 2006 to about $9.5 billion by 2012. Over that five- or six-year period, we're looking at a 41% deterioration in that travel balance, a deterioration of almost $3 billion a year. These are important numbers.
In the time left, let me mention that in terms of the sensitivity analysis we do, normally we would argue that a 10% increase in the Canadian dollar versus the U.S. dollar should result in about a 15% to 16% reduction in overnight travel from Americans; it's quite elastic, in fact. But our feeling more recently is that the sensitivity will probably be down now to about the 0.8% to 0.9% range. In other words, a 10% increase in the Canadian dollar should lower U.S. overnight travel by about 9%.
The reason for that is that generally the U.S. doesn't have the same kind of appeal as it would have had in the past. We've seen a lot of retailing giants now show up in Canada, so we're not seeing quite the same sensitivity. But we're assuming, with the recent increase in the dollar, which was about 18% over the last nine months, that Canadian overnight travel to the United States should be up by about 16% as a result of it.
The other side of the coin, U.S. visitors to Canada, is not nearly as sensitive as in the past, but basically we feel there's roughly a 0.5% to 0.6% elasticity. So again, that 18% increase in the value of the dollar over the last nine months should lower overnight travel from the United States by about 6%.
So we're looking at about a 16% increase in Canadians going to the States and about a 6% decline in Americans coming to Canada, and both are going in the wrong direction, if you like, in terms of our balance of payments.
That's just from that increase in the dollar that has taken place over the last nine months. Obviously, there is fallout from the rise in the dollar that took place in the years prior to that.
In the interest of time, Mr. Chair, I'll stop there.
My name is Jordan Fenn. I am the publisher of Key Porter Books, and I am honoured, having received the invitation to be here today, to present the impact of the strong Canadian dollar on the Canadian publishing industry.
Located in Toronto, Key Porter is one of the few remaining wholly owned and operated Canadian publishing houses and enjoys sales that place us in competition with the large multinational branch plants, such as HarperCollins, Penguin, and Random House.
We've been publishing books of importance to Canada and Canadians for close to 30 years and have had the esteemed privilege to work with and represent many talented authors during our history, including former Prime Minister Jean Chrétien as well as current party leaders Jack Layton and Elizabeth May.
The Canadian publishing industry has produced an incredible number of internationally acclaimed writers and has seen the respect for our homegrown authors grow, particularly over the last three decades.
Protecting this unique voice of Canadian culture is important, and ensuring a healthy industry today will provide a strong industry for future generations of writers and their respective audiences.
Our industry has faced many challenges over the years, and though there have been casualties, we have survived. The challenges we face today at the hands of a strong dollar, however, are significant, so much so that they will seriously impact the entire publishing community as well as associated businesses, including our retail partners, printers, distributors, transportation firms, and obviously the writers' union. As a result of the rising dollar, the media, politicians, and consumers have questioned the retail pricing of books and have demanded par pricing.
I do not believe that the issue has been properly communicated to the marketplace. If anything, it has been poorly represented and has created greater frustration and anger within the consumer sector. Instead of our finance minister holding up a copy of a Harry Potter book and challenging the Canadian price, he could have explained the economics of producing books for a population of 300 million versus 30 million.
Why does a book priced at $24.95 U.S. have a Canadian retail price of $32.95? With a par dollar, should these prices not be immediately changed to reflect this?
The development of a book sees work begin an average of 18 months before it hits retail shelves. All costs for titles published today were therefore incurred and budgeted well over a year ago and at the exchange rate at the time. For Canadian publishers, these costs are all in Canadian dollars.
While one would think that Canadian industry would benefit from a rising currency, the strong dollar provides no advantage or benefit to Canadian publishers, as the majority of our publications are acquired from Canadian agents representing Canadian authors, with each contracted in Canadian dollars. Our operating costs and overhead, including salaries, leases, promotional costs, utilities, etc., are all in Canadian dollars, and given that the majority of Canadian publishers support Canadian printers, the costs to print, bind, and deliver the books are also in Canadian dollars.
After scrutinizing and examining all facets of our business in the development of each book, I see nowhere along the line that allows for Canadian publishers to benefit from a strong dollar. Our costs are static, if not increasing, and yet in order to be competitive against the less expensive American publications crossing the border, we are forced to adjust our prices, which is a direct hit against the profitability and therefore the health and sustainability of our industry.
Profits in publishing are already thin. This is a fragile industry, and thus the impact this is having on Canadian publishers has the potential of being devastating, as the financial implications of reduced revenue against static costs produce an obvious outcome.
Books have long had accepted consumer price thresholds. Each format, whether it be a hardcover, a paperback, an oversized illustrated title, or a children's book, has an established price point that is the result of publishers' budgeting and is based on measures that allow the publisher to acquire the title, financially compensate the author, produce the book—including all associated costs, such as editorial, design, production—as well as to provide the retailers with a discount, which affords them the required margin. Additionally, each book has a set amount budgeted to cover overhead, marketing, and publicity and distribution costs.
In the American market, these same formats have established pricing based on the power of the American dollar. The exchange rate has determined the Canadian pricing on imported books, though if a title originates domestically, the prices are as mentioned.
As an example of what we're experiencing, if you look at a Canadian fiction title, paperback, average price of $21.95, south of the border, we see these books are approximately $6 or $7 cheaper. While Canadian publishers are not benefiting from the strong dollar, we've been challenged to lower our prices to place our formats in line with American titles of the same genre. Failure to lower our prices will impact our ability to compete with imports, although by lowering these prices we are in fact removing all levels of profitability. Without that, we lose the ability to offer retail incentives, promote our authors effectively, and market the books. Without supporting each publication with a marketing and publicity campaign, Canadian-authored titles will languish on shelves and the impact will seriously lessen the saleability of our books. This will not only affect publishers, but authors and retailers as well.
On the retail side, I understand from various partners that at the front lines of the pricing issue, they are faced daily with irate customers demanding price parity. I've even heard of a customer being removed from a Toronto bookstore by police for throwing books at store employees because of the pricing. What this consumer didn't understand was that even on the books that are imported from American publishers, these prices were set at least 12 months in advance, and that the Canadian company representing the American publications incurs all costs in Canadian dollars, has all staff compensated in Canadian dollars, has overhead expenses in Canadian dollars, bills and collects in Canadian dollars, and budgets based on annual anticipated sales revenue in Canadian dollars. To simply lower retail pricing for such firms is to—
I'd like to thank parliamentarians for holding these hearings. I know you hear many witnesses, and it might even get boring sometimes, but I just want you to know that we really care about this stuff and really appreciate it when you actually give us your attention. It matters a lot.
What's at stake in the forest industry is a million jobs, 3% of the gross domestic product, the largest employer of aboriginal Canadians, and 300 towns, which will shut if we have to shut the mills. In these towns, you can't just move to the next industry. In many of these towns there's nothing to do but go up either to Prince Albert or down to Toronto.
What's involved is the economic backbone of a lot of rural Canada and a huge number of jobs.
The good news is that this industry has been Canada's productivity champion for eight out of nine years. Of all of manufacturing, no other industrial sector has improved its productivity as much as the forest sector.
The good news is that we've outdone the U.S. in the wood sector in productivity year after year and have kept pace in pulp and paper.
The good news is that we are the environmental performance champion, having done Kyoto seven times over, but also having committed to carbon neutrality without buying offsets. Canada is the champion in terms of logging without deforestation: we have virtually no deforestation, whereas most of our competitors do.
The good news is that global demand for our products is going up 3% a year, equal to twice the whole production of Quebec every single year. And very few countries are positioned to supply that demand, because they have huge land-use problems, water problems, energy problems, and environmental problems.
So we have a great industry, a great employer, huge demand, and great productivity, and we are being taken down by a 40% increase in our cost structure. All of our input costs are in Canadian dollars and all of our sales are in American dollars. No matter how productive, brilliant, innovative, or entrepreneurial you are, when your cost structure goes up 40%, you're not quite sure where to look.
In addition, the volatility of the Canadian dollar has made many international companies say, “Let's go some place where the currency is more stable than a mining stock.” The future of our currency is being traded like pork bellies. Speculators are making huge profits or losing huge amounts of money betting on our currency going up and down, and in the meantime our industrial infrastructure is heading south.
Put yourself in the shoes of a Canadian company with mills in Canada and the U.S., let alone those of the American- and the Scandinavian-owned companies. Put yourself in their shoes. You don't know whether your cost structure is going to be at a 98¢ dollar, a $1.02 dollar, a $1.10 dollar. You have no idea where it's going to go. Even if you could make a profit at parity, are you going to take a chance and invest in Canada or are you going to move your money south?
Many economists have been saying that Canada is weathering this storm well and that it's amazing how well things are going. Economists live in the world of numbers that are published. Businessmen live in the world of numbers that are going to come, because they see where the investment is going. And the money is flowing elsewhere because of the instability of the dollar and because of the height of the dollar.
So first, we are saying to the bank: our economy is not a spectator sport; you are not powerless; allowing our dollar to move as if it were a penny stock is a mistake. The bank should send a strong interest rate signal for it to come down and tell speculators that they cannot make a profit on the backs of Canada's infrastructure.
Those economists who say there's nothing that can be done are wrong—the bank can act, can send a signal—and those who say “let the market decide” have been living inside their economic textbooks instead of in the reality of today's economy.
The second thing we are saying is not to the bank but to all parliamentarians. There is a unanimous report, an all-committee report, on the future of Canadian manufacturing. It has 30 excellent recommendations for creating a business climate that would make people want to invest here.
Key among these are the refundability of the research credits—the SR and ED credits—and also the extension of the capital cost allowance to five years. That would make a big difference. It would make people think we believe in our economy.
Let me talk for just one minute on the SR and ED. Right now we get this tax credit if we're making a profit. If we're not, the government says, “Oh, it's nothing to do with you.”
Why would we not want to allow support for innovation for industries going through transformation? Why would we only want to support innovation and those who are already doing well? Why would the government, why would the finance minister, why would Canada want to wash its hands, to abandon innovative efforts in manufacturing in the forest industry and those industries that have to innovate their way out of trouble? Refusing to make the investment credits refundable means you're betting on our going out of business and we'll never get those credits. We need the money now. It's money we spent on investment; it's money we'd get when we get profitable; it should come soon as refundable credits to help manufacturing.
Thank you very much, Mr. Chair.
First, let me thank the committee for the opportunity to appear before you to share our views with respect to your investigation of the impact of the rising value of the Canadian dollar in various economic sectors.
First let me thank the committee for the opportunity to appear before you to share our views with respect to your investigation of the impact of the value of the dollar.
Tourism in Canada is a $66.9 billion sector that accounts directly for more than 630,000 full-time jobs and indirectly employs 1.66 million Canadians. Its economic impact is felt in all regions and communities across the country. Moreover, it is a key generator of tax revenue for all three levels of government. In 2006, an estimated $19.4 billion in tax dollars were generated, including $9.1 billion at the federal level.
Without question, Canada's tourism sector is greatly affected by the recent rise in the value of the Canadian dollar vis-à-vis its American counterpart. Earlier this month, TIAC held its annual tourism leadership summit in Victoria, British Columbia. We titled this year's summit “Red, White and Blues—Renewing American Travel to Canada”, and the focus of our program was the significant declines we have observed in visits from our neighbours to the south.
In five years we have seen the number of inbound customers from the U.S. drop by a significant 34%. This figure is particularly worrisome to the sector when you consider that Americans make up 86% of non-resident travel to Canada. Moreover, this decline pre-dates the historic appreciation in the value of the Canadian dollar that we have seen in recent months.
The reasons for the decline in the number of Americans visiting Canada are not strictly tied to the dollar. The overall declining economy in the United States and the significant rise of gasoline prices have created a disincentive for the rubber-tire visitor to come to Canada. Gas prices are encouraging more Americans to fly rather than drive to their holiday destinations, and the relatively high cost of flying to Canada creates a price disadvantage compared to U.S. domestic destinations, Mexico, the Caribbean, and some European ones.
Significant issues exist at our border crossings for Americans as well, with lengthy wait times and confusion over the documents needed to be able to return to the United States. These factors have combined to alter what were longstanding leisure travel patterns for residents of both the U.S. northern border states and Canadian provinces.
These are all contributing factors that would have impacted Canada's tourism industry independent of the dollar's rise. But what we know from having observed the travel patterns over the past 25 years is that the number of inbound visits traditionally tracks very closely—as my colleague Paul indicated--the value of the American dollar. As the value of the U.S. dollar rose throughout the 1990s, the number of person trips to Canada rose to more than 45 million. But over the past four years, as the greenback slid in comparison to the Canadian dollar, the number of person visits has dropped to the lowest levels in 30 years.
The higher value of the Canadian dollar will also encourage Canadians to travel and spend their tourism dollars abroad, further magnifying our tourism deficit. We measure this deficit by looking at the amount that Canadians spend abroad versus the amount that foreigners spend when they're travelling in Canada. Since 2002 this deficit has risen exponentially, from $1.7 billion in 2002 to $7.2 billion currently. We can only assume by what we have observed this summer and fall that this number will rise. Numbers released this week by Statistics Canada demonstrate that in September, with a 95¢ dollar, overnight car travel to the United States rose to its highest level since 1993.
I know there are members of the committee from the Niagara region, and my guess is that tomorrow morning there will be a significant exodus of your constituents across the Rainbow Bridge looking for black Friday bargains. This doesn't only mean that local retailers will take a financial hit at a crucial time of the year; it also means that those families will spend money on food, lodging, and other attractions that they might have otherwise spent here in Canada. At the same time, we are being told by Niagara Falls tourism that they've seen a 16% drop this year in the number of people making day trips from the States. We're hearing similar stories from other border towns, such as Windsor and Victoria.
What steps can we take to ensure that tourism can regain its footing? First of all, let me emphasize that because of the foreign currency earnings that tourism generates, it has always been considered an export industry. It is affected by the rise in the dollar in the same way that forestry and manufacturing are. As such, we would urge you to remember tourism if you get around to recommending any sort of adjustment or mitigation policy to help defray the impact of the rising dollar.
We can also ensure that we invest sufficiently in the physical infrastructure at Canada's crossing facilities, including increased investment in the development of new biometric-based forms of ID, such as an enhanced driver's licence.
To help manage the flow of people across our borders, we should get the Canada Border Services Agency to actively monitor and evaluate peak border times with the intent of reducing processing delays experienced by visitors.
We should also invest in our border crossings so that wait times at the border can be actively monitored and evaluated with the intent of reducing delays experienced by visitors and of helping to manage the flow of people across our shared borders.
We also need to assess how we can make Canada a more economical destination by air. The tourism sector, the Canadian economy, and Canadian citizens will benefit from further open skies negotiations, which would increase competition and result in more flights to and destinations in Canada.
My final point is that marketing assistance for the Canadian Tourism Commission would be extremely helpful.
Thank you for the opportunity to address this committee.
The high Canadian dollar has added more fuel to the crisis situation of the forest industry in northern Ontario and is causing uncertainty and fear in all small communities across the north.
The entire economy of northern Ontario and the very fabric of our lives are in jeopardy. Although I represent the town of Hearst, this presentation could easily be made by Longlac, Smooth Rock Falls, Wawa, White River, Atikokan, Nippigan—northern Ontario communities that have permanently lost their single industries—or by Kapuskasing, Opasatika, Cochrane, Dryden, Kenora, Timmins, Kirkland Lake—who are currently struggling with significant cutbacks and massive layoffs in the forestry sector.
My municipality is 500 kilometres from Thunder Bay, Sudbury and Sault Ste Marie, 600 kilometres from North Bay and 955 kilometres from Ottawa and Toronto. Much of northern Ontario above the 50 th parallel is populated by First Nations, who live in isolated communities that generally are only accessible by air, although one, Moosonee, can be reached by rail.
Hearst has a population of 5,620 people, but my community serves a much larger geographical area of 10,000 people. Northern Ontario is boreal forest, and it holds most of Ontario's natural resource wealth. With only 7% of Ontario's population, we are exporters because we have to be.
Over the years, local operations have consolidated or closed. Hearst has lost four major mills, and two of the three newer operations now belong to North American conglomerates. The industry has always faced the challenges of surviving to the "boom and bust" cycles that are typical of our northern natural-resource-based economy.
This is no longer the case. The global market situation has made the crisis that we are facing today much more serious. This unprecedented challenge cannot be met without government intervention. The forest industry is our livelihood, and the driving force behind our local economy.
In the immediate Hearst area, three manufacturers—Columbia Forest Products, Tembec Industries Inc. and Lecours Lumber—employed 765 people directly in 2006, and another 171 indirectly in secondary support and service industries. In my community of 5,620 people, the forestry sector accounts is clearly the major employer and accounts for at least 43% of the labour force.
In Hearst, Tri-Cept (Hearst) Inc. permanently closed its planing mill with a loss of 40 jobs in 2006. Columbia Forest Products closed their particle board plant in Hearst at the beginning of this month, with a loss of 83 jobs. On November 9, 2007, 1200 layoffs were announced by Buchanan Forest Products across all their operations in both northeastern and northwestern Ontario, Bowater in Dryden and NorBoard in Cochrane.
Countless families are affected, not because they work in the industry, but because they supply goods and services to the forest industry and to its employees. Older workers in the mill in Hearst are poorly educated. They have not even finished high school and are now facing layoffs with no education.
Real estate values, both residential and commercial, are collapsing because the large plants are closing. This is what we are facing. Our young people are moving away. They are leaving town in order to be able to find a full-time job.
Northern Ontario industries, and, with them, our northern Ontario communities, are facing our most serious challenges. My neighbour here I think addressed the role now played by the issue of the dollar.
Electricity costs are very high in local mills and they have increased by 10-12% in recent years. Fuel costs have soared, but the increase cannot be passed on to the consumer because the market will not bear added costs.
As for transportation, the national rail infrastructure in northern Ontario is in poor condition, though it is vital to move our products to market. The Ontario Northland Railway closed its spur line to Lecours Limber, but the provincial government intervened to save the railway, and the jobs on the First Nations reserves.
Remote First Nations in the far north have no access to our northern communities. Some members of First Nations have no education and no access to services that can provide it so that they can play a full role in our society. The government should ensure that they have access. The far north has resources and the government should open it up so that the resources can save the north as a whole. The resources are there, and the First Nations want to work. Let us get to work together.
Thank you for the question, Mr. McCallum.
Clearly, the industry was concerned last year with the cancellation of the visitor rebate program. We were heartened to see the replacement of two-thirds of it, which dealt with the group tour market and the meetings market in the form of a foreign convention and tour incentive program. That program has been in place now since April of 2007.
We have indicated to Minister Ablonczy, who's responsible for this sector, that we will be happy to review it with her at the year mark in April of 2008 and see if any features of it could be tweaked to enhance its function as an incentive scheme.
The loss of the individual program was a concern. We indicated that at the time. Many other countries that have value-added taxes rebate the VAT to the visitors to their country, but that's life.
On the ADS we would like to obtain that designation. We are concerned that the United States is close to obtaining that designation fairly soon, and that is a market...although the Chinese market is growing substantially without ADS because of visiting friends and relatives and business travel. So it is growing significantly, although we would like to be able to tap into the tour market eventually, which is what the Australians are doing at the moment.
I have to say that members did good work together. This is a real demonstration of our Chambers' ability to work in a non-partisan and intelligent way that has the welfare of the country as its foundation. So first, I congratulate all parties for that.
But second, it is not enough. Action must come more quickly. A step in the right direction has been taken, some taxes have been reduced, but, given the crisis in our manufacturing sector, more urgent action is needed.
We've got guys being thrown out of their jobs; their houses, which used to be worth $500,000, are now worth $50,000; they don't know where to go; and there's no time for scholarly reflection on the economics. We have an all-party report.
As a minimum, this report should be implemented quickly.
and the top priority is the refundability of the SR and ED. You know, we've got companies now that are going to go down whatever you say and do with the dollar. They're just not going to make it. We have others that will do just fine; even though they're hurting and complaining, they'll survive. But there are a whole bunch in the middle who, with a little action from Parliament on something like the SR and ED, could move to the winner's instead of the loser's category. It's a question of two or three years of trying to survive in this extremely difficult time of transition.
So no, it's not a magic bullet for all of them. Some of them you can't help. The economics won't work. And some of them are just so smart and good, they're going to survive. But why give up on whole towns when something as clearly competitive as tax credits for research and innovation would help them innovate their way through this crisis?
Well, I think certainly the notion of extending the capital cost allowance beyond its sunset, making it even potentially permanent, is very definitely important, and that was I think at least hinted at in the economic statement.
Regarding the reduction of corporate taxes, as Avrim points out, it is appropriate and does stimulate business investment. But you do need to be profitable to benefit from that, and I think that's a very important point to make. It does have an impact, clearly, that will help manufacturing. But for some of the sectors that are most severely affected by the rise in the Canadian dollar, you may have to think of something a little more targeted.
In general, obviously, the economic statement was quite stimulative. So it does, at least to some extent, offset negative implications of the rise in the dollar in terms of our GDP, and from that perspective it is useful. But again, there are some interesting regional issues and interesting inter-sectoral differences that I think will challenge any government in terms of appropriate policies to help mitigate what Mr. Lazar, for example, calls a period of transformation. I think it's important for the government to think very long and hard about how it might effectively and efficiently address those problems, because subsidies are not generally seen as a good long-term strategy. In addition, we have seen artificial support for industry—again, not a good long-term strategy.
But I think along the thoughts of Mr. Lazar and others here, strategies that would encourage investment, that would help to encourage innovation, get the costs down so that manufacturing firms could be competitive at the higher dollar, and help them over that transition period are really the right way to go.
I am the President of NEOMA, which extends from Matheson to Hearst, about a four-hour drive. I represent all the communities in northern Ontario. The way in which our forest industry works means that each community depends on the others for survival. Plants need each other, for wood chips, dust and so on. Everything is interrelated. When one plant closes its doors, the rest of the forest industry goes out of balance. That is where it is important.
I think that the government needs a new vision for the forest industry. Hearst has "gone green" for two years now, with a vision based on the environment, on people and on economic development. The government talks about it, but we need action, we need it to support communities who want to move with the times.
In Hearst, we have the Bio-Com Project, which is designed to provide information on biotechnology, on converting biomass to ethanol, on methanol, on information technology, on automation, on new processes, new materials and value-added products. In our neck of the woods, we are just used to making 2 x 4s, 2 x 6s and 2 x 8s. We have to adapt to demand if our communities are going to survive.
Thanks to all the witnesses for being here. If I have time I'll come back to Mr. Fenn and ask him about the finance minister's much ballyhooed press conference, where he talked about how difficult it was to buy the latest Harry Potter book in Canada—much to his later embarrassment. But we'll come back to that.
I hope I have a chance to ask Chris Jones something about tourism, because I have a northern Ontario riding of 110,000 square kilometres, which happily includes Hearst. I thank the mayor of Hearst for making the long trip to help us out today. I should point out that the mayor of Hearst is the president of the Northeastern Ontario Municipal Association, so he's well qualified to speak for a large number of communities in northern Ontario.
He talked about communities being really stretched and stressed by forestry, and I would add towns like Espanola, for pulp and paper; the Nairn lumber mill, which has closed down; Midway Lumber Mills in Thessalon, which is about to close down; and in Chapleau...he knows all their stories.
Let's say the federal government had a program, Monsieur Sigouin, that partnered with you and other communities to say we're going to be your partner. You have the ideas for economic development. You want to transition to the next cycle of the forestry sector, which means there will be changes. You want to transition to the diamond mining opportunities up in James Bay area. There are other opportunities. It's not hopeless. You know that's why you're here. There is hope, but it requires transition and change. So if you had some federal and provincial dollars in your community, what are some of the things you could do?
Last Saturday we started to talk with the first nations people, face to face.
The town council of Hearst and the band council of Countess Lake 92 got together and learned a lot about each other. I think that our future lies in the far north. The solution is to develop the far north, to go and get the resources, while still respecting the First Nations and their realities. We must help them move things forward. There will certainly be ups and downs, but as elected representatives, we have to have mutual understanding and support so that we can move forward.
Today, people in some First Nations in the north are going to pay $8 for a quart of milk. They are living in conditions that are unacceptable. We must try to help them. After all, we are going to benefit from the resources in the far north. We must work together and move forward, while respecting First Nations' culture. Otherwise, we will not be able to move forward, and we will all go under. I think that First Nations are open to the idea of working with us along those lines. It is going very well.
I encourage the government to invest in FedNor so that we can move projects forward, especially in communities that are in trouble and that need help. At the moment, there is a lot of bureaucracy. My apologies if I am insulting anyone, but the bureaucracy is awful. We get nowhere. Often we get money from the province, but the federal government steps on the brakes rather than help us. I think doors should be opened so that northern Ontario receives the help it needs to move forward.
We agree with you completely. This is very urgent; it cannot wait.
It's simply because people are deciding today where to invest. The decisions are being made day by day: is Canada a place to put your money, or should it be put in mills in the south? So the faster we act on the all-party manufacturing committee recommendations, the more money gets invested in Canada. There's a tendency to look at the job figures and say this is how things are going. That's where the puck was yesterday. Where the puck is going is where the investment is going, and we can't move too quickly. It is very urgent that we make these changes.
To be fair, the government has done a lot of good things, and we respect that very deeply. To be fair, the unprecedented impact—at one point it was up 65% over five years; that almost never happens. In Germany, their currency has gone up 10% and the minister of finance was saying they've got to worry about this, they can't have a currency that fluctuates that way. The head of the European Bank started to talk about the impact on industry of a 10% change in the euro relative to the dollar. We seem to have sat back, and I'm not criticizing anyone in particular on this. I think as a politically light group of economists, we've sat back and said this is what happens. It shouldn't happen.
I don't agree that the government can't do anything about the dollar. There is a philosophy behind what the Bank of Canada does. It's a philosophy based upon the single value being the control of inflation and a belief that intervention can't work, but when Mr. Dodge and Mr. Flaherty expressed serious concern, the speculators got the message and the dollar started to come back down.
So I think we need to take more responsibility for our currency, because our currency is the base of our economy. I'm not talking about fixing the dollar or intervening in a way that sets it somewhere where the economics don't make sense, but the relative economic strength of Canada relative to the U.S. doesn't change 20% a year. Our productivity hasn't zoomed up so we can explain a 20% raise. Theirs hasn't dropped. The dollar's movement reflects speculators, not basic economics. Of course, it shouldn't be at 70¢, but neither should it go up that much that quickly. It should reflect basic economics, not the greed of speculators.
I want to continue on that. We can play politics here around who's moving fast enough, who's not doing enough, who should do more, and the government needs to do what. It's a minority government; it's not a majority. We can't implement everything we'd like to because we have to work with our colleagues. Every once in a while we have to remind the opposition of that.
You raised a very good point, and that is the intense escalation. It's interesting, because the reason you're here is to talk about the issue around the dollar, and we spent very little time talking about that today. We spent a whole lot of time on recommendations on what we should do in terms of improving the individual sectors you represent. It's fascinating and it's helpful because we are also doing pre-budget consultations.
To return to the issue of the dollar, the intense escalation is not based on anything other than, I guess, speculation of investors. That happens and there's not much you can do about it. The fact is, when things happen this quickly, it's very, very difficult for any business, or government, for that matter, to react in a way that isn't just going to be reactionary, to try to put on a band-aid and fix it, but to try to be substantive in terms of looking forward in the long term.
You touched on the fact that the dollar escalated so quickly. Is it not fair to say that if we're going to move forward, we need to make sure we do what's right rather than just what seems to be urgent?
You would like to see the finance minister use his bully pulpit in a positive way.
I want to direct the next question to Mr. Darby.
We do have a reference where the finance minister did use his bully pulpit in a proper way, which was to try to express concern about the volatility of the dollar. Of course, the Governor of the Bank of Canada also used his bully pulpit in a responsible way and tried to jaw the dollar down, or jaw some stability into the dollar.
Almost all the witnesses from the economic side of the equation, Mr. Darby, said we have space for the Bank of Canada to reduce interest rates. I'm assuming that you endorse that position, but from an economic standpoint, work me through the situation in which if interest rates were reduced, how that would help, say, Mr. Lazar's industry or others, and what would be the inflationary impact of that kind of move on the Bank of Canada?
Thanks. That's a good question.
Just by way of background, Canada has two open skies aviation agreements at the moment; the United States has 70-odd. We are just now embarking on negotiating one with the European Union.
It would assist our industry immensely if there could be a greater range of destinations from outbound markets into Canada, a greater range of flight options and fares, and more airlines flying. For Canada, the more of that the better. Many markets in Canada, from Newfoundland to British Columbia, claim that what they lack, from an inbound visitation point of view, is significant airlift and air capacity. These kinds of negotiations are incredibly helpful, and we need to encourage our Transport Canada officials to negotiate more of them.
The single biggest issue here, if I can just take a few seconds to talk about this, is that the domestic cost, the structural cost, of aviation in this country is a massive disincentive to travel, both within Canada by Canadians and by foreigners. The airport rents, the air travellers security charge, and a series of other fees and levies all combine to make landing a plane at Pearson, according to IATA, the most expensive airport in the world at which to land a plane. That has a massive knock-on effect on tourism, convention businesses, and all kinds of things that depend on Pearson being a gateway for foreigners. So anything that can be done to reduce the structural costs of aviation in this country would be much welcomed by our industry.
I'll do my best, Mr. Chair. Thank you.
Thank you for the opportunity to appear and discuss the impact of the Canadian dollar and its appreciation on our economy. It's only a few years ago, it seems, that we were worried about the dollar being too low. That weakness reflected our precarious fiscal state, low commodity prices, and other factors. We complained about the way it sapped our productivity, added to inflationary pressures, and left us vulnerable to foreign takeovers. Thinking about that today brings to mind that old adage about being careful of what you wish for.
Strong currency does have many benefits. Consumers are enjoying lower prices on goods imported from the United States. If the dollar stays high, you're going to see prices continue to fall as inventory works its way through the system. Businesses can also benefit from a higher dollar. As import prices come down, it makes it easier and more affordable to invest in imported machinery and equipment, much of which comes from our neighbour to the south. The downward pressure on both business and consumer prices in turn makes it easier for the Bank of Canada to justify lower interest rates, and that of course is a benefit to both business and families.
But make no mistake, both the current level of the dollar and the incredibly rapid pace of its rise are causing real problems for our economy. In the resource sector, tight labour markets keep driving up Canadian dollar costs even as the shift in exchange rate takes away much of the global rise in commodity prices that are expressed in U.S. dollars. Manufacturers have already shed hundreds of thousands of jobs. The damage in that sector could very much get worse.
Exporters of services are affected just as badly because their biggest cost is people who are paid in Canadian dollars. This includes Canada's vital tourism sector, which is being hurt by the rise of the dollar and increasing security requirements, both current and projected, at the United States border.
Perhaps the biggest risk moving forward lies in the causes of the plunge in the American dollar, not just against ours but against all major currencies. The United States faces huge fiscal, trade, and current account deficits, a situation that we in Canada remember well. The real danger is that these economic negatives, which have been compounded in recent months by the crisis in financial and housing markets in the United States, could plunge that country into a recession. A major downturn in our largest export market clearly would compound the damage already being done by the dive in the U.S. dollar.
In the meantime, the worse aspect of the exchange rate situation is not the absolute level of our dollar against its American counterpart but the speed and volatility of currency movements. Over time, Canadian companies can offset a higher dollar, either by moving operations offshore, purchasing offshore, or by investing in new technologies that deliver higher quality at lower cost right here in Canada. That, I would suggest, is the preferred outcome.
That kind of investment, though, takes time. It takes time to develop, to buy, and to put in place. At its recent peak of close to $1.10, our dollar had risen a stunning 29% since the beginning of the year—74% over the past five years. Even aggressive business investment cannot cope with that speed of change.
It has to be recognized that Canada has done remarkably well so far in replacing the jobs being lost in manufacturing with other jobs. Certainly there have been studies suggesting that those jobs being created are in fact better than the ones being lost. But I would suggest that this kind of performance cannot continue indefinitely in the face of both a rising Canadian dollar and a weakening United States economy.
The most important steps that governments can and must take now are to focus on helping business accelerate investments that are necessary if we want to keep growing jobs in this country.
Successive federal governments have done a good job in steadily bringing down the statutory corporate income tax rate. But because of the lead times involved in major capital investments, I would suggest that the federal government should extend the faster write-offs for manufacturing equipment that were introduced in the last budget. It also should consider improvements to drivers of innovation, such as the scientific research and experimental development tax credit.
I think that raises the broader issue that while it's a good idea to support business investment through the tax system, we have to take account of what you do when companies are not making any profits to be taxed and how you make sure the incentives are effective.
In any case, assistance on the tax front must not be limited to the federal government; provincial governments have to do their share too. That is a task that is most urgent in Canada's manufacturing heartland of Ontario, which currently suffers under one of the highest effective tax rates on new investment in the industrialized world. Provinces are gradually reducing their capital taxes—that's a good thing—but the most critical next step is for Ontario, British Columbia, and other provinces that still levy sales taxes on business inputs to convert them to value-added taxes similar to, and preferably harmonized with, the federal goods and services tax. Provincial governments should also be moving more quickly in eliminating their capital taxes and should be doing their bit to lower the provincial corporate income tax rates.
Tax policy is not the only lever governments can and should pull if they want Canada's long run of economic growth to continue through the current crisis in our largest market; they need to tackle every policy that adds unnecessarily to the cost of doing business in this country.
The federal government needs to achieve the goal of the smart regulation initiative, cutting the cost of the administrative burden of regulation by 20%. Federal and provincial governments need to continue their work to reduce the remaining barriers to the movement of goods, people, and investment across provincial borders within this country—and also ensure that other important policy objectives, such as addressing climate change, are done in ways that add rather than subtract from our country's competitiveness.
One other point I want to make, Mr. Chair, is that Canada also has to ensure that both people and goods move smoothly in and out of our country. This requires significant investment in transportation and border infrastructure, but it also reinforces the importance of strengthening the efficiency of the North America economy as a whole and in particular making sure that the Canada-United States border stays open and efficient. An efficient Canada-U.S. border is critical to the competitiveness of Canadian companies. By the same token, the potential combination of an increasingly security-driven, sticky border and a high Canadian dollar forms a powerful incentive for businesses to put any new investment into the United States rather than our country.
Cutting taxes on business investment, streamlining regulation, and working towards a seamless border, I want to admit, are not new ideas or new prescriptions. They made sense even when the dollar was low. What I want to suggest to you today, Mr. Chair, is not only that they make even more sense now, but also that they have become pressing necessities, given that the dollar has climbed so far and so fast.
Thank you, Mr. Chair.
First, I would like to thank the members of this committee for agreeing to hear our views on the situation and on the effects of the rise of the Canadian dollar against the American dollar specifically, but more generally against other world currencies.
Most of you know our organization, the Union des producteurs agricoles. The organization represents agricultural and forest producers in Quebec. In our agricultural division, we have 43,000 members on about 30,000 farms throughout Quebec, with farm-based sales of $6.2 billion.
In our forestry division, which we represent through the Fédération des Producteurs de Bois du Québec, we have 130,000 owners of private forest land who contribute 20% of the supply to Quebec plants. This means 30,000 jobs directly in those forests, a figure that does not include the multiplier effect in processing.
Right off the bat, we must emphasize that the rise in the Canadian dollar against the American dollar is having unprecedented consequences that are destroying our sector. The extent and the speed of the rise in value of our country's currency—almost 30% against the American dollar in only two years—are closely linked to the rise in the price of oil. I have provided a graph that shows these changes. The rising cost of energy and the difficulty in getting our products to market are causing our production costs to increase. This structural and very sudden change has resulted in agriculture and forestry in Quebec becoming significantly less competitive.
As monetary policy is in federal jurisdiction, it seems to us essential that the Government of Canada must show its leadership by bringing in measures to help our industry through this crisis.
At the meeting of Ministers of Agriculture last November 16 and 17 in Toronto, the industry demonstrated the harmful effects of the rise in exchange rates on agriculture, specifically on meat, and the topic was a significant part of the discussions held by the Ministers of Agriculture.
Here are some of the repercussions of the Canadian dollar's rise against the American dollar: it affects the income of producers; it depresses market prices; it means that we lose markets; it adds more imports to our markets; it drives our exports down—especially in forestry, which is being very badly hit all round. Canadian measures to ease this crisis in forestry and agriculture are having little effect.
You know, I am sure, that the prices of most of our agricultural commodities, grains, beef, pork and some market garden products, are set on the Chicago Exchange. Whatever happens on that Exchange affects the Canadian market once the exchange rate is taken into account.
In the Quebec pork industry alone, the loss of revenue, just for 2007, is almost $200 million. If I do the same calculation for Canada, the lost income climbs to the order of $600 million in Canadian pork production. The word "production" does not include slaughterhouses. Pork is our second biggest agricultural export, and sometimes, the biggest. The blow is extremely severe.
There is also an effect domestically. The substantial drop in the value of the American dollar makes their products very attractive in Canadian stores because they are now priced much lower than our own. This creates a substitution effect in our markets.
Furthermore, in export markets other than the United States, where we are compete with American products, the competition is intense, and we are losing export markets as a result.
According to one study at an American university, each time that the Canadian dollar increases by 1%, 0.2% of our exports to the United States disappear in the short term and 0.5% disappear in the medium term. So let us not downplay the medium term effect which is only just starting to appear. What we are seeing in the short term is only the beginning of the full impact that the exchange rate could have. That impact on the farm will be somewhere between $1.5 and $4 billion in the next few years.
In forestry, 68 mills in Quebec have shut down. Producers in the Gaspé, in the Lower St. Lawrence and in Abitibi-Témiscamingue have no way to get their products to market because of the impact that the value of the Canadian dollar has on our exports.
We are making four requests at this committee meeting: to establish an urgent action plan to cushion the harmful effects of the value of the Canadian dollar; to act on the suggestion made by Mr. Charest, the Premier of Quebec, to hold a first ministers' meeting as soon as possible; following on from the recent meeting of Ministers of Agriculture, to quickly implement measures to help the pork, beef and market garden sectors, because we are also losing our slaughtering capacity which is heading more and more to the United States; to establish an AgriFlex program, as proposed by the Canadian Federation of Agriculture, that would allow provinces to access federal funding for provincial programs.
Thank you for your attention.
I haven't really prepared for this because I didn't know what we were going to talk about, but it's a subject on which I'm reasonably versed, so I won't have any great problem.
About three years ago I got together with Mr. Dodge and indicated to him that the dollar had already risen quite a bit. In a country where one-third of the gross product is dependent on the United States and 85% of our exports go to the United States, we cannot go through periods every 20 years when commodities do well and our manufacturing industry goes broke. That's exactly what's happening and will happen to practically all of our manufacturing industries in Canada—or they will move out of this country—if we continue at the current level of exchange.
I indicated to him at the time that inflation was one item, but for a country tied as closely as we are to another country, the exchange rate makes an enormous amount of difference.
Even your members of the more socialist parties will recognize that if you raised wages in one year by 29%—as we did this year as the result of the dollar differential between us and the States—and 74% in a four-year period, the unions would have done something about it. I don't believe there are any industries that have any amount of labour capable of overcoming that kind of disincentive...except to go bankrupt.
Until recently I was a director of Canfor, which is the largest sawmill operation in Canada. I can tell you that at this point, even though I'm no longer on the board, we don't have a single mill in Canada that isn't losing cash at the current exchange rate, despite the fact that we invested hundreds of millions of dollars in new equipment when we had the money.
Very often we are told that this is a wonderful time to invest, but if you're going to go bankrupt anyhow and the dollar keeps shooting further up, I would say it would be throwing good money after bad. You might as well go bankrupt and try to save as much of your money by pulling it out of there before you go bankrupt, rather than putting additional capital into the company.
When you have as close a relationship as we have with the United States—and I'm thinking long term—it's going to be very difficult to attract people to invest in manufacturing here, because for 60 years, ever since World War II, we have been trying to build a manufacturing base in this country. The result of what we have seen in the last few years is that the manufacturing base is being totally destroyed.
I believe that if we stay at the present level, practically the entire forest products industry will be in bankruptcy, with an enormous loss of employment. I believe that about a million people out of the 30 million depend on the forests, and it's going to create absolute havoc in the mill towns, especially in areas like British Columbia, where you have to compete with wages in Alberta.
If you look across Canada, especially in the heartland, where we don't have oil production, we are really living in a country where the hair on the tail of the dog, namely the 70,000 people who live in Fort McMurray, are really the engine of this petrodollar.
When you look at Alberta at the present time, conventional drilling for oil is practically non-existent, and very large reserves aren't going to be found there any more. Because of the differential in the gas-to-oil price internationally, most of the gas drilling—and that's really what the province is all about, other than in Fort McMurray and the tar sands—there's hardly any activity there, and it's very much reduced this year compared to last year. So it's really the hair on the tail of the dog that's wagging this dollar.
The other thing that has had enormous influence in the last few months is the fact that we have allowed some of our largest corporations to be taken over by foreign interests. I believe the recent upsurge in the dollar to $1.10 was largely the result of people who received the Alcan money translating it back into Canadian dollars. Our firm estimated that some $20 billion was involved in that alone.
If BCE goes ahead, the foreign investors from the United States who work together with the teachers' union will also bring probably another $20 billion in.
The way we have organized it—and this is an Alberta problem—the development of the tar sands, whereby everybody is building at exactly the same time, reminds me of what happened during the uranium boom some 40 years ago in Ontario. All these companies are going to have enormously high costs, far higher than if there had been scheduled building whereby only so many tar sands would have been allowed to be built.
My personal feeling is that in a country like Canada we cannot permit ourselves to have a dollar that goes through these kinds of gyrations, and I think we have to really seriously start thinking of a model of a continental currency, just like Europe has a continental currency. We have to work towards that, not at a price where we are today, but at an average price.
Even then, we have to keep in mind another thing, and that is that in a country as cold and as distant as Canada, we have a problem of productivity. Our productivity increases will continue to be slower than in the U.S.
There are a number of countries whose currency is pegged to the American dollar. China has done it with the yuan. There are small adjustments to be made, but I think that we could do the same with the Canadian dollar. We could allow 5% each side of a logical value for the Canadian dollar, that I would put around 80¢. Our dollar could go up or down by 5% depending on the time. I would find that acceptable.
You can attribute China's success to the fact that its currency is tied to the American dollar. Many other countries have done the same thing, like Saudi Arabia.
In our case, although a third of our gross national product is tied to the Americans and 85% of our exports go there, all we are doing today is resigning ourselves to becoming [Editorial Note: inaudible] because of the Americans. Actually, the Americans are importing Canadian industries to the United States, and ours are going bankrupt. In English, we would say:
they are beggaring us.
This is something that they were already talking about during the Great Depression in the 1930s. I think that the solution is either to adopt American currency for the entire continent or allow a 5% margin on either side of a value for our currency that would reflect the country's gross product compared in real terms to theirs.
However, what is happening today is that enormous tax revenues and profits are being lost. We are even selling oil at $50 instead of $95 today, if we compare it with the price five years ago.
This is a subject that our membership has given a great deal of attention to over the last six months in particular, and a couple of months ago we brought out a set of principles that essentially laid out what we thought was a path forward, a framework if you want, that would enable us to make effective progress as a country on the climate change challenge while also moving us forward as an economy, rather than adding to the problems of growth.
One of the key elements in that was understanding the importance, if we really want to make substantive decreases in emissions of greenhouse gases, of developing the new technologies and getting them in place at the consumer level as well as the business level. That's what's going to give us the big gains in terms of production.
But as for your first question, the research cycle can be lengthy, and I think what we have to make sure of is, first, that government policy recognizes the importance of technological improvement to the environmental challenge, and second, that economic policy, the business framework, encourages that research.
If I may, just on the scientific research tax credits, Mr. Chair, I think one of the short-term suggestions that's important is the potential to make that refundable to companies that are not profitable but would like to invest. We are working currently with Industry Canada doing a joint study to try to get a better handle on how that tax credit and other drivers of innovation might be improved.
I can tell you what happened and how I got to those numbers. I was consulted by Paul Tellier, a director of both BCE and Alcan, before their takeovers. He had the figures from Alcan and BCE, and we estimated at that time that each would entail about $20 billion owned by Canadian holders. That is why I said Alcan alone was $20 billion.
In addition to that, there are these enormous sums coming in for the tar sands that are, as I said before, being brought in here absolutely inefficiently and are going to be overspent tremendously. The companies' costs are going to be such that their profitability will be negligible unless the price of oil stays very high. That has brought in an enormous amount of money.
There have been many other smaller companies in this country taken over by money coming in. We were involved in St. Lawrence Cement, in this connection, etc.
I am not a great believer in just selling all our companies in this country. Already, 80% of our stock market today is either cyclical or made up of materials and financial stocks—80%. That's not a market anybody can diversify in properly for investment.
I am not in favour of subsidies, but we have to come at some early stage to a long-term solution to the relationship of our currency with the United States, because we are tightly tied to that market and we cannot permit ourselves either to go back to 62¢ or to stay at the present level; we're going to destroy all kinds of things in this country.
I would like you to continue what you were saying, Mr. Jarislowsky. I liked your presentation very much, precisely because you were telling us about the short-term problems that we should be acting on. You also said that, in the longer term, a similar situation will keep happening periodically as long as we keep putting up with our fluctuating dollar.
I would like you first to return to the short term and to the measures that we have to take. Do you think that the Bank of Canada should intervene with the tools it has at its disposal, such as interest rates, for example? Should it intervene on the money market, buying and selling currency?
In the longer term, in connection with the single currency idea, that the Bloc Québécois shares, how do you see it working in Canada? What timeline would we use to put the idea into effect?
Thank you, Mr. Chair. I'll try to be brief in order to turn it over to my colleague.
Mr. Jarislowsky, obviously we're doing some pre-budget consultations and some discussions around the rapid rise of our dollar, but one of the other issues that we think, and certainly our finance minister has indicated.... Canada is the only industrialized country without a common international securities regulator. In the past you've indicated that a common securities regulator with real teeth would be a lot more effective in protecting Canadian investors than the multitude of provincial and territorial regulators we have now that have no teeth...or from that perspective to be able to prosecute folks, at least in federal jurisdiction. You've also indicated, too, in a speech, and I'll quote, that “most of the 13 securities commissions do little other than make people fill out forms and take in fees”. I see I got a smile out of you there. That's great.
Having a national regulator, one of the aspects that we've talked about and that our finance minister has talked about, is the ability of one regulator in this country, with some teeth, to be able to bring forward and ensure that we've got security measures in place that would make sense from a regulatory perspective.
Could you comment on that?
If I may, perhaps I'll address both halves of that.
First of all, obviously it is not the role of the Government of Canada to tell the Bank of Canada what to do. So what the government can do is not on the monetary policy side; it's on the fiscal policy side. I believe the government has all sorts of levers, not to change the value of the dollar necessarily but to enable companies to cope with that and to ensure that companies are able to continue to maintain and to build jobs in Canadian communities despite whatever value the dollar may achieve from one day to the next and from one year to the next.
Some tools the government can use would be more useful in the short term. Refundability of tax credits, for instance, is one of them, whether research tax credits or other vehicles. Faster writeoffs is another. Those are things that I think can be helpful in the short term.
In the longer term, I think it's a matter of keeping fiscal policy on the right track. I think this government has done a lot of things right. I think the previous government laid the ground work for some of that, particularly on corporate income tax rates, and that has to be recognized. I'm glad to see a cross-party consensus on the fact that high corporate tax rates don't pay and lower ones in fact are generating more income tax revenue for the federal government than ever before.
So I think it's important to use the levers that governments do have, whether on the tax front or through regulatory policy, as I mentioned, for instance. Look at what tools are actually going to be most effective in reducing the costs that companies face or enabling commerce to move more quickly. The number of years it has taken—still is taking—to even get near a second bridge between Detroit and Windsor, which is a crossing that's currently carrying 20% of our exports.... It's staggering that it has not been able to move forward faster. Clearly, the federal government has a role in that. It can't do it alone.
We've always been willing to look at the costs and benefits of that strategy. On balance, we have in the past believed, and we continue to believe, that adopting the current currency or adopting the U.S. dollar would not be in Canada's interests.
Frankly, there are two options Mr. Jarislowsky has put forward. One is to try to maintain a band. There are a lot of currency speculators around the world who got rich taking advantage of governments or central banks trying to prop up bands. George Soros springs to mind, in the U.K.
The other possibility is simply to adopt the U.S. dollar, which would give up all control of monetary policy in this country. We're not Europe. We're not going to get a significant say in U.S. monetary policy if we adopt their currency.
What you really have to look at, whether we're looking at short-term problems--the sub-prime mortgage crisis, and so on, going on in the United States, and the impact that may have on U.S. inflation and U.S. interest rates--or the long-term impact of these huge U.S. deficits on the government side, the fragility of their social security system and what's going to come out of that in terms of U.S. inflation rates down the road, and therefore U.S. interest rates.... When we look at the U.S. doing all the things wrong that we did wrong in the nineties and fixed...do we really want to pay the price for that by paying U.S. interest rates, by hooking our currency to that over the long term?