INST Committee Meeting

STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY

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

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, October 31, 2001

• 1525

[English]

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

Pursuant to Standing Order 108(2), the committee is resuming its consideration of the economic impact on Canada of the September 11, 2001, terrorist attacks.

Just to remind everyone, the task of the committee is to anticipate the many and not so many obvious consequences and advise the government and regulators on how to effectively respond to post-September 11.

The committee has invited industry stakeholders to define their specific circumstances, identify the new problems they face, describe their immediate and longer-term responses, and specify the actions they believe governments should take.

Yesterday, the Honourable Brian Tobin opened a special hearing, followed by the representation from the automobile sector, the Canadian Manufacturers and Exporters, the Chamber of Commerce, the Canadian Federation of Independent Business, and representatives from the steel and mining sectors.

This afternoon we are continuing our special hearings with representatives from the tourism sector, and later with representatives from the aluminum sector and the construction sector.

The hearings so far have been very helpful and insightful. There's little doubt that the days and months to come will be challenging to all, but perhaps it is when we are challenged that we're all at our best.

I want to thank the witnesses for their willingness to appear before the committee. I will remind you to keep your presentations brief, so we can have a very good dialogue.

We're very pleased to welcome here, from the Tourism Industry Association of Canada, Mr. Gerry Macies, director; from the Hotel Association of Canada, Mr. Anthony Pollard, the president; from the Canadian Restaurant and Foodservices Association, Ms. Joyce Reynolds, the senior vice-president of government affairs; and from the Association of Canadian Travel Agents, Mr. Randall Williams, the president and chief executive officer.

If I understand correctly, Mr. Pollard is going to begin.

Mr. Anthony Pollard (President, Hotel Association of Canada): Thank you very much, Madam Chair.

Members of the committee, thanks for the invitation to be here today.

The Hotel Association, just as background for you, is a federation of provincial and territorial hotel associations, hotel chains, and suppliers. Our industry in 2000 generated $10.6 billion in revenue, and the value-added, which is what we contribute to the economy because of our industry, was another $9.6 billion. We employ about 237,000 people in Canada, and salaries amount to about $4.5 billion.

One of the things I like to point out to government is the level of taxation that is generated because of us and why you like us. At the federal level it's $1.8 billion, provincially it's about $1.4 billion, and municipally it's about $639 million. As your chair has said to me on more than one occasion, we're often referred to in the hotel business as the good-news industry. I like to reinforce that with people for a very simple reason: we create jobs and we bring in revenue. People like us.

I was asked to appear before this committee, and I'm pleased to be here. I wish I could bring perhaps little brighter news, but at the end of the day we still have quite a positive outlook.

At the outset, let me state very clearly for the record that before September 11 our balance sheets were in very good shape and our fundamentals were very good. Our industry was performing very well, thank you very much. I'd also like to state for the record, very importantly, that we are not asking government for any form of handout at all.

Now to the bad news numbers. From September 11 to September 26, our industry lost $249 million across Canada. Through to January 31, 2002, we estimate we're going to lose another $542 million, or a total of $791 million by the end of January.

Yes, these losses are staggering. Some areas have been harder hit than others. Urban convention hotels, airport hotels, and destination resorts have borne the brunt of it. Windsor is probably one of the hardest hit areas in the country right now. We're literally being decimated down there. At the same time, in other areas of the country the impact has been relatively minor.

• 1530

So what do we do?

Immediately following the terrorist attacks, we were in touch with the Prime Minister and all of his cabinet, as well as many other government agencies and departments, and many of you individually. We stated very clearly and very forcefully that safety and security were our principal concerns.

Let's all be very realistic. Until a person feels safe and secure, they are not going to travel. Period. End of discussion. Right now, we're starting to see it come back a little bit, but we felt that message had to be conveyed, and the leadership in this country had to demonstrate they were still travelling.

You, as members of Parliament, are playing a major role in that. When you return to your constituencies and meet with your constituents, I'm sure each of you is asked at least once, “So what is it like to travel? What is it like at the airport? Tell me what it is really like.”

I see you nodding. Yes, that's what happens. You're saying it's not so bad. In fact, it might even be a little faster because there are fewer people travelling right now.

Anyway, we conveyed this message to the Prime Minister on September 21, and he wrote back to us on October 16. He acknowledged this and said it was important to restore Canadians' sense of security and personal safety, so daily activities would return to normal as much as possible.

We welcome the government's October 11 announcement of $250 million, subsequently $275 million, for improvements at borders and airports, as well as for the RCMP and CSIS. I think we can all take pride in the fact that our government is now playing more of an enhanced leadership role in CSIS. I don't know what went on in QP today, but I'm sure there might have been some discussion about that. I think we, as Canadians, can be proud of that.

At the same time, we called on the government—and this is very significant—to implement a new significant and substantive initiative to kick-start travel. We asked the government for $25 million. This was not a handout for our industry. We asked them to come up with a marketing plan to stimulate travel in Canada through the Canadian Tourism Commission.

Yesterday—it was quite nice—I was up in Tremblant delivering a speech to my colleagues in l'Association des hôteliers du Québec. I flipped on the television, and there was this committee with Mr. Tobin appearing before it.

I immediately sent off a note to the minister saying we welcomed his announcement of the new $20 million marketing campaign to promote Canada. We stated that in mid-September we first approached him to undertake this initiative, and we pointed out that prior to September 11 our balance sheets were good, as I just said. However, I said, we were already sustaining major losses. It's right in the letter.

As I said in the note to him in September, our position is to help the government help us. Collectively, government and industry can and must work together. Specifically, we asked for this marketing campaign. I went on in my letter yesterday to say he had now spoken, and his action through this initiative would go a long way toward kick-starting travel.

I have to say we're working very closely with Jim Watson, the head of the Canadian Tourism Commission, on the most creative and effective program possible. I was on a conference call from 3 p.m. to 6 p.m. sitting in a hotel room—it's not a lot of fun—on Monday going over the details of what this campaign is going to look like, how it's going to work, why it should work, and what the placement should be. So we're all very excited about it.

I finalized my letter by saying, “Mr. Minister, your support of the hotel industry is very much appreciated.”

But we also haven't overlooked the long-term strategic view. Last Friday, with my colleagues from the Canadian Restaurant and Foodservices Association, as well as a couple of other groups, we met in Montreal with the finance minister. At this session we requested some items, most importantly a $3,000 employment insurance exemption similar to the Canada Pension Plan, which would represent a saving of about $94 per hotel per employee.

I was also very clear on a question from the Minister of Finance, and said that if any of these initiatives—we talked about a variety of things, not only at this meeting but at other times—would result in the country returning to a deficit position, we would in fact withdraw that request.

• 1535

Finally, I'd like to speak about one thing that's very near and dear to our hearts, and that is looking at the long-term strategy. That's the issue of borders and the so-called North American perimeter.

First of all, let me say that the free movement of visitors to Canada is critical. Next to Canadians they are our most important client or guest. We all know that. We strongly support the efforts by the federal government to enhance security at the borders while balancing the need for efficient handling of travellers.

Here are some of the things we're looking for.

We need to implement border innovation. We need to upgrade and share the technology used to run the border. We should merge and expand the existing concept of the INSPASS, which is the American one, and the CANPASS, which obviously is ours. This is a credit-card-like identification that expedites border passage for frequent legitimate travellers. It uses common technology and sharing of databases in a fashion that does not offend domestic privacy laws.

Let me be very clear. Our Canadian sovereignty would not be diminished, nor should it be diminished, with any of these initiatives.

We should share more information concerning the identity of passengers and planes destined for each other's countries. And we should move clearance of commercial traffic to remote locations, staffed jointly, so that most trucks don't stop at the border. We should also consider policies that facilitate freight movements on rail since trains don't clog border crossing points. We need to examine very carefully a perimeter policy.

If countries in Europe can figure out how to employ common standards without fear of eroding identity, then presumably we can do better in North America. Let's face it. We're only trying to do this with the borders of three countries. Remember that a perimeter policy does not imply or result in unilateral action. Both Canada and the U.S. must have the confidence in the other—safety and security at borders and airports.

So, ladies and gentlemen, at the outset I said that our fundamentals were good, pre-September 11, and, yes, we have sustained some very major and significant losses. We will endure, particularly when we in the private sector work very closely with you, our parliamentarians, and with all levels of government.

So, yes, I'd like to say we still are the good-news industry.

Thank you once again for this invitation.

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

We're now going to see if Mr. Macies has any comment.

Mr. Gerry Macies (Director, Tourism Industry Association of Canada): As a point of clarification, I am a volunteer on the TIAC board of directors, and together with my family we own and operate the Best Western Macies Hotel here in Ottawa.

Madam Chair and members of the industry, science and technology committee, I'd like to thank you for this opportunity to highlight the Tourism Industry Association of Canada's views as you consider the economic impacts on Canada as a result of the terrorist attacks of September 11.

TIAC is a leading national private sector advocate for policies and programs that enhance the viability and sustainability of Canada's tourism industry. Our advocacy efforts focus on the removal of restrictive legislative and regulatory barriers to the growth and cultivation of the Canadian tourism industry.

The tourism industry is a major economic sector in Canada. In the year 2000 tourism spending grew by almost 8% from 1999, to over $54 billion. The industry consists of 159,000 businesses employing more than 540,000 people directly. From a government perspective the tourism industry produces estimated revenues of $16.7 billion in taxes.

By way of background, the “tourism industry” is defined as any industry within the tourism sector that serves visitors directly and would cease to exist, or whose level of activity would be substantially reduced, without tourism, for example, hotels, which you have just heard about from Tony Pollard.

The short-term economic impacts on the tourism industry as a result of September 11 have been quite noticeable. The projected revenues for tourism in Canada in 2001 were to be $57 billion. This figure has since been reduced to $55.5 billion. Thus, the anticipated dollar figure loss for our industry this year is going to be approximately $1.5 billion.

However, when looking at these figures it is important to note that the selected industries within tourism experience different degrees of sensitivity to external shocks. Geography also affects how tourism is impacted. For example, border communities reliant on tourism, such as Niagara Falls, have suffered more than others. Destinations relying on international visitors have also seen a relatively large impact.

• 1540

The severity of the initial social and economic impacts and aftershocks are diminishing with time, but apprehension regarding further terrorist attacks in the U.S. will persist into the near future. New warnings by the U.S. government about imminent homeland attacks exacerbate the situation.

TIAC sees the main short- and long-term challenges facing the tourism industry in the post-September 11 realities as relating to business and consumer confidence. Economic challenges, concerns about safety and security, and an uncertainty about unfolding world events are affecting both business and consumer travel. This directly impacts our tourism businesses.

At the National Conference on Tourism, which was held recently in Vancouver, TIAC's board of directors adopted a priority plan to address the industry's new challenges and priorities. This plan includes two components. One component is to get people moving again by seeking additional funding for marketing initiatives for the Canadian Tourism Commission. The second is to restore consumer and business confidence by supporting efforts by the federal government to enhance security at Canadian borders. These efforts should be balanced with the need for efficient handling of travellers by encouraging the federal government to maintain the principles of sound fiscal management and by espousing greater cooperation between the different levels of government and between government agencies that have a stake in the tourism industry.

In addition to the above-mentioned priorities, TIAC continues to support the other initiatives that would be beneficial to the Canadian tourism industry, including the establishment of a yearly basic exemption in the employment insurance program and the renewal of Canada's national highway system.

For the record, TIAC applauds the Minister of Industry's announcement yesterday, before this committee, of a $20-million commitment for a marketing campaign to encourage Canadians to travel within Canada and to attract Americans from nearby border states. By investing in more tourism industry marketing, the government has taken significant steps towards mitigating the impacts of the September 11 attacks.

In conclusion, our industry has been significantly impacted by the terrorist attacks of September 11. TIAC is not advocating for bailouts or direct assistance for businesses, but we seek measures that will stimulate consumer and business confidence. Restoring business and consumer confidence is the key to recovery for our tourism businesses.

TIAC encourages the federal government to move forward on policies and priorities that will restore consumer confidence and help our businesses survive these challenging times. We need to get people travelling again. TIAC is available to assist your committee and the federal government in efforts to restore this confidence.

We would like to thank the committee for this time today and the opportunity to share our views with you. We look forward to your report on this very important study. Thank you.

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

I'm now going to turn to Ms. Reynolds from the Canadian Restaurant and Foodservices Association.

Ms. Joyce Reynolds (Senior Vice-President, Government Affairs, Canadian Restaurant and Foodservices Association): Thank you, Madam Chairman.

The Canadian Restaurant and Foodservices Association is the largest hospitality association in Canada, with 15,900 members representing over 47,000 food service establishments. As has been said previously, we know the hospitality sector was one of the hardest hit by the economic fallout of the terrorist attacks in the U.S. Even before September 11 the economy was slowing, and it was only a matter of time before our industry started to feel those effects.

So the question now is, how bad will it get? I'm going to lay the groundwork with a look at the size and scope of Canada's food service industry before I go into our projections.

The food service industry generates $40 billion annually in sales. That's over 4% of the country's gross domestic product. And with 963,000 employees, we provide jobs for over 6% of the Canadian workforce. We're also one of the most important sources of entry-level jobs for students and for young people. Those jobs are found in 64,000 food service establishments, and two-thirds of those are independently owned and operated businesses.

During 2000 and the first six months of 2001, the industry had been on a growth streak. In fact, sales surpassed our expectations. They expanded by 6.5% in the first quarter of 2000, and they just kept getting better. Our latest numbers showed a 7.5% growth in the second quarter of 2001.

For the first time in a decade, sales growth at full-service restaurants outpaced limited-service restaurants. However, there were signs that the good times were coming to an end.

Food service sales tend to lag the economy, so a downturn in the fourth quarter of 2000 would typically impact food service sales in the third quarter of 2001.

Based on the economy, CRFA was already forecasting a downturn in sales. And then along came September 11. Suddenly air travel ground to a halt; tourism convention business travel dried up; consumers stayed home. They purchased only the essentials and put off any spending on luxury items like fine dining. It seemed so trivial in the face of such unimaginable human tragedy. We all heard stories of people cancelling long-awaited vacations, in some cases because of fear of travelling or wanting to stay close to family, and in other cases because a fun-filled trip seemed so trivial.

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What's unusual about this situation is that much of the economic impact has been extremely dramatic but localized. It is not only by region, but also by city and neighbourhood. Restaurant and hotel districts that rely on business travellers and tourists have seen their sales plummet in the last month and a half. On the other hand, some quick-service restaurants have seen their sales increase as consumers head for the drive-through on their way home to watch the latest news on the television. All of it has contributed to the complexity of trying to forecast what lies ahead.

Based on key economic indicators such as personal disposable income, gross domestic product, and consumer confidence, our forecast has been revised. I think the figures have been distributed to you.

Sales are expected to slow dramatically to 1.7% in the third quarter and decline in the fourth quarter with 0.7% growth compared to last year. The poor outlet continues in 2002 with a -2.8% growth in the first quarter and -1.5% growth in the second quarter. Then sales move into a more positive position in the third quarter. Over this year-and-a-half forecasting period, revenues are projected to be $4 billion lower than our pre-September 11 forecast.

You can see from the chart that has been circulated that we're forecasting a slowdown in sales in 2002 that could range from a 0.7% decline to a 1.3% increase. The mid-point is 0.3%. It essentially means flat sales in 2002. Our original forecast was for 3.8% growth.

Ms. Paddy Torsney (Burlington, Lib.): We don't have any chart in front of us.

The Chair: We're asking the clerk to arrange to have it passed out.

Ms. Paddy Torsney: If Ms. Reynolds could go over the numbers while we're all looking at them, it would be more helpful.

The Chair: As soon as we can get it passed out, Ms. Torsney.

Ms. Joyce Reynolds: I'll go back to them. I'll carry on in the meantime.

[Translation]

Mr. Stéphane Bergeron (Verchères—Les-Patriotes, BQ): Madam Chair, I'd like to raise a point of order.

I don't want to unduly embarrass the witnesses with that kind of rather technical consideration, but we've already had two documents in English only. Does this committee usually allow documents in only one of the official languages to be distributed to members?

[English]

The Chair: Monsieur Bergeron, you're allowed to table the documents in either official language. They should not have been distributed if they were in one language. I didn't know they were in only one official language. I apologize. It should not have happened.

Ms. Joyce Reynolds: The one paper I circulated was in both official languages. There is an English and a French version.

The Chair: I've only seen the English. It's only in English. Is there a French copy as well?

Do you have the French copy of the chart?

[Translation]

Mr. Stéphane Bergeron: Apparently, there is a French version.

[English]

Sorry.

Ms. Joyce Reynolds: I'll carry on. I can go back to the numbers, if it's okay.

The Chair: Everyone has a chart now. Please continue, Ms. Reynolds.

Ms. Joyce Reynolds: I won't go through a regional and sectoral breakout of the forecasted numbers.

In summary, we're looking at a flat growth in 2002. We did ranges as opposed to specific targets. The mid-point is about 0.3% for the industry as a whole.

As has previously been mentioned, locations that have been hardest hit are border towns, whose local economy depends on day trips by American visitors; the downtown cores of major urban centres that draw convention and business travellers; airports; and winter tourist destinations like Banff and Whistler.

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There's no getting around the worsening economy. Every day we're faced with more news of layoffs, falling consumer confidence, declining stock markets, and an unavoidable recession in the U.S. For most operators, it will be the bigger concern over the coming months, barring, of course, another tragedy that shakes the economy and an already fragile consumer confidence.

How is the industry responding? Unfortunately, they're responding in the way they normally respond. They're trying to find ways to reduce the labour component within their operations. It's one of the few costs that isn't fixed in a restaurant operation.

Food service is a highly competitive industry. The average restaurant survives on razor-thin margins. Restaurants have seen their average before-tax profit margins drop from 9.6% in 1990 to 6.6% in 2000. Over this period of time, the average number of workers dropped from 14 to 12, which is a net reduction of employees of 114,000.

You asked us to tell you what actions we believe government should take, given the looming terrorist strikes and the weakened economy. Undoubtedly, the answer is to reduce the heavy and ever-increasing payroll tax burden on labour-intensive businesses like restaurants. The per restaurant reduction in employees over the past decade is in no small part due to the government's growing reliance on profit-insensitive payroll tax revenue. The federal payroll tax burden for the average restaurant has jumped 50% since 1989. According to a recent Conference Board of Canada study, payroll taxes represent 40% of the tax burden of the average restaurant operator, compared to 29% of the tax burden for the average corporation.

We know what happened when payroll taxes increased substantially during the last downturn in the economy. Human resources development studies attribute 200,000 job losses to the increase in UI costs from $2.25 to $3 in 1991. In January we're faced with another 40¢ increase in federal payroll taxes and the possibility of no reduction in EI premiums. This will be the largest increase in payroll taxes since the last recession. It's particularly frustrating when there's a $40-billion EI reserve that has ostensibly been accumulated for this type of situation.

CRFA has proposed, as Tony mentioned, a $3,000 yearly basic exemption in the EI program. It would make this payroll tax more progressive, provide relief from escalating payroll taxes, and preserve jobs, particularly entry-level jobs. This proposal has been endorsed by the Standing Committee on Human Resources. It was favourably received by the finance committee. It has received support from members of Parliament in all parties. It does help the groups most punished by this regressive form of taxation on lower-wage workers as well as labour-intensive businesses.

We know economic uncertainties and the tremendous external pressures you are faced with right now limit your flexibility and options. We also understand fiscal discipline remains extremely important. However, with CPP premiums increasing another 40¢ per $100 of payroll in January, a pass on EI premium reductions should not be an option for government. The type of premium reduction is obviously very important. We believe a YBE makes the most sense, not only at this time of economic uncertainty but in the long term as well.

Thank you.

The Chair: Thank you very much, Ms. Reynolds.

We're now going to turn it over to Mr. Randall Williams from the Association of Canadian Travel Agents.

Mr. Randall M. Williams (President and Chief Executive Officer, Association of Canadian Travel Agents): Madam Chairman, members, the Association of Canadian Travel Agents would like to thank the committee for taking this initiative in trying to grasp the economic impact on Canada from the September 11 terrorist attacks.

Representing an industry that was directly and severely affected by the horrible events, ACTA would like to set out for you today the scope of the impact on those who found themselves on the front lines during those fateful days. We would also like to propose a few temporary measures to alleviate the impact.

ACTA represents over 5,000 agencies across the country that employ about 30,000 people. We recognize the government has already made a few announcements that testify to its awareness that exceptional measures have to be taken. We remain concerned, however, that the specific impact on the travel agencies is not well understood. We hope your committee will be able to help us in this regard.

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Travel agencies, during the month of September, were affected 40% to 60% in their business volumes. We're projecting, in the last quarter of 2001, business levels—optimistically—being 20% to 30% down.

In the week that followed September 11, at a time when commercial air travel was suspended in North America, travel agencies worked harder than ever. Under extremely stressful circumstances, their staff assisted displaced passengers to return home; they cancelled previous bookings; they refunded tickets; and they answered queries—all without booking any new sales.

That week ACTA estimates that agencies lost approximately $20 million in revenue, nearly $16 million in lost commissions, $3 million in lost service fees, and about $1 million in overtime for increased labour costs.

In light of these losses, attributable directly to the emergency, ACTA requests that the government establish a fund of $20 million to which individual agencies could apply for compensation, based on their volume of business during the same one-week period last year.

This is not a handout or bailout. This is compensation for our customers being removed from flights and put in places unknown, and then our having to try to get them home. Our businesses continue to suffer, but we limit our requests to our immediate and active involvement in this crisis only.

The government has recognized that the airlines lost $160 million directly during that one-week period and has compensated them accordingly. Travel agencies were also on the front lines and deserve proportionate treatment.

The vast majority of Canadians who were grounded during that time were our customers, not the airlines'. They called us for help when they had to get home, not them. We are linked to the airlines like no other industry. If an airline fails and you've bought your ticket from a travel agent, where will you go to get your refund or your money back? You go to the travel agent. That's why we're linked.

In the same vein, ACTA also proposes that the government arrange for a short-term loan program—just as it has for Canada 3000—to allow travel agencies to cover cashflow concerns over the next short term. We have just heard that between now and January 21, American travel agencies will be able to obtain loans up to $1.5 million at a maximum interest rate of 4% for a term of up to 30 years.

Madam Chairman, we have to remain competitive. Unassisted, Canadian agencies could become vulnerable to American interests and takeovers.

Turning now to the labour situation over the next six months, ACTA can see a number of ways in which the government can help travel agencies retain their employees or diminish the impact on those who may have to be laid off. We're talking about 6,000 to 8,000 employees.

The employment insurance regulations should be adjusted: first, by allowing two employees to share one position with their pay supported by EI—a program that already exists, but we need that program expedited in its approval process and we need it to include larger corporations that have been affected, as it's targeted for small business; second, by not penalizing employees who will be working reduced hours in the coming months as we try to keep them in the workforce, so that if we need to lay them off eventually, their count-back period for benefits would start from September 15 and back, not during the depleted work time; and third, by removing the waiting period for personnel who have to be laid off.

Looking even further into the future, the government is to be congratulated for its recently announced investment of $250 million—$275 million now—in improved equipment and staffing at airports. We had asked for that back in September and are pleased that the government has heard that request.

But beyond the strict question of security, there is a more pervasive question of Canadians' desire to travel. Without a positive stimulus, there is a danger that the psychological ripple effects of September 11 will extend throughout an already faltering economy.

• 1600

In this regard, ACTA applauds the Minister of Industry's recent announcement of a one-time $20-million supplement to the Canadian Tourism Commission to boost its advertising budget. That should help to re-ignite Canadians' desire to travel—within Canada.

Unfortunately, though, this will do little to help our industry, as it primarily is targeted to bringing Americans here. That help isn't the focus of our travel agency industry.

Another positive incentive to get people to travel again would be to provide for a tax deduction of up to $1,000 for personal travel expenses occurring during the calendar year 2002. The United States has a bill in front of it right now considering this same option. These deductions would be further limited by being restricted to travel within North America and would cover airplane, cruise, train, bus tickets, hotel and motel accommodations, etc.

Just as all Canadians were stunned by the horrible events of last month, so should all Canadians be now encouraged by their government to reaffirm their right to be mobile.

To summarize, Madam Chairman, ACTA Canada recognizes the overall need for the government to stay the fiscal course and not get derailed in the pursuit of its fundamental objectives. But we would like to see the measures we have just proposed become part of the government's national security package, a package it has already begun to unveil in legislative and financial terms.

Like other parts of the package, our recommendations arise out of unfortunate circumstances, but we believe they are necessary measures, if only for a very limited period of time. I thank you for your attention and look forward to your questions.

The Chair: Thank you very much, Mr. Williams. We're now going to turn to questions, and we're going to begin with Monsieur Bergeron.

[Translation]

Mr. Stéphane Bergeron: Thank you, Madam Chair.

No doubt, what happened on September 11 will have a crucial impact on the tourism industry in Canada. Right now, it's difficult to determine the extent of this impact. The odds are that the industry will restructure, as intercontinental travel is likely to decline and domestic travel to increase. So at some point in time, the industry might well gain from this new situation, but in the meantime, it's obvious some adjustments have to be made.

I'm rather surprised to hear such diverse opinions this afternoon, as we tend to think that, in the tourism industry, all players work hand in hand.

As I said, we've heard a variety of opinions or requests, ranging from Mr. Macies, who wasn't asking the government for anything in particular, to Mr. Williams, who presented us with a rather exhaustive list of requests or measures which should be implemented, at least temporarily.

To be able to present a global view of the Canadian tourism industry, how can we explain, conceptualize or rationalize the different opinions you expressed this afternoon, so that in a report which won't, of course, be as exhaustive as your presentations, we are able still to justify this or that action, when some witnesses have told us they want nothing and others said they want such and such?

[English]

The Chair: Mr. Williams.

Mr. Randall Williams: Thank you for the question. Merci beaucoup.

If I can attempt to answer that, the tourism industry, which I have been a player in for about 34 years, has always been known to be very diverse and complex. As you suggest, it needs to be integrated, but at times it's very sector-specific.

You heard diverse opinions but you also heard, I think, congratulations on all fronts for the government's $20 million for the Canadian Tourism Commission. We all supported that and congratulated the government for that. That will help. Also, in regard to heightened finances for security, we all applaud that and supported it in previous presentations. So you have unanimity at least on those two issues.

• 1605

I think you have unanimity here as well, from what you heard, that the sector is down and suffering. Some of us have a different perspective, though, on what happened the week of September 11. TIAC and the Hotel Association of Canada, and certainly our industry, are not asking for solutions to the recession we're in and handouts because our industry isn't sound. We will recover in many cases. But what we are asking for at ACTA, for travel agencies, is what the airlines received.

By the way, the airlines are one sector as well. The government already recognizes, by giving $160 million to the airlines, that they have picked one sector of the tourism and travel industry and have said they need help. What we're suggesting to you is that we are joined at the hip with the airline industry. We put three out of every four seats on their airplanes. We have to comply with airline regulations. None of my colleagues here do that.

We have plates in our offices for their tickets. Nobody else can say that. We also are responsible, as I indicated earlier, if an airline fails. Customers go to the travel agency asking for their money back. If an airline fails, they're not going to hotels and restaurants asking for their money back because of the airline failure.

So we are joined on a number of issues, but on certain issues, sectorally, we can vary. I hope that helps to explain.

The Chair: Mr. Bergeron, very briefly.

[Translation]

Mr. Stéphane Bergeron: So, if I understand correctly, what you propose in fact is not an overall initiative to support the tourism industry with a capital I, but rather sectoral measures in favour of the various components of the tourism industry.

[English]

The Chair: Mr. Williams and Mr. Pollard.

Mr. Randall Williams: I don't think I said that. I think I said, overall, we all are agreed that we need increased promotion and increased security. That helps our industry.

But further than that, on top of those initiatives, the government has given airlines $160 million compensation for that one-week period. We're saying that travel agencies are very much related to that compensation issue. The other industries certainly aren't, but we are related just because of the way we're structured in the industry.

The Chair: Mr. Pollard, do you want to respond?

[Translation]

Mr. Anthony Pollard: I think Mr. Williams has suitably answered the questions. Thank you.

[English]

The Chair: Ms. Reynolds, did you have something to add?

Ms. Joyce Reynolds: All I want to add is that ACTA is not part of the coalition, but TIAC, the Hotel Association of Canada, CRFA, and the Retail Council of Canada are all united in our desire for payroll tax relief, and specifically a yearly basic exemption. So there is some consistency there as well.

Mr. Randall Williams: We would support that, too.

The Chair: Thank you.

We're going to have to move on to Mr. Bagnell. If I could remind members, we do have other witnesses coming, so if I could have shorter questions and shorter answers, that would be helpful.

Mr. Bagnell.

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

Thank you all for coming. As the former director of the Tourism Canada office in the Yukon, I'm delighted you're here. I was at the meeting when Mr. Tobin made that announcement. You probably couldn't see me on TV, but I was there. It was great to get that $20 million out there.

Ms. Reynolds, I think you hit the nail right on the head that the problem is that people see a fun-filled trip as frivolous in these serious times. But in the point you made twice about payroll and EI, I want you to know that the human resources committee has recently approved unanimously some more amendments in a report the minister is now reviewing. I haven't seen it myself, but hopefully you will review that, because I imagine it has even more deductions and things that would lead to an increase, not a decrease in payroll taxes. So I would recommend that you put a submission in on that.

I don't need an answer to that. It's just a point of information.

• 1610

Mr. Williams, I understand that before September 11, the travel agents had a very serious dispute that would mean a lot of revenue with Air Canada, which is 65% of the airline travel in Canada. Is that true?

Mr. Randall Williams: Yes.

Mr. Larry Bagnell: Because today's talk is on the borders, my last question for everyone—and it could have a brief answer—is, do you have a lot of evidence of border problems, either real or perceived, that your customers are saying this is a problem and they're not going to cross because the border is a mess?

I need to know if it's real or perceived, because that will affect our solution. We either have to fix the border or the perception.

Mr. Anthony Pollard: In response to your question, it's both.

You have to remember that we have a problem with Americans wanting to come up here, because they don't want to travel. They don't feel secure. They want to stay at home.

For a lot of the hotels in the city centres, the larger centres, the numbers from the United States are down approximately 65% since September 11. That's a big hit. It's the biggest single hit we have. A lot of those are business travellers coming up here by plane, as opposed to rubber tire, which obviously means driving across the border, but that's down as well.

But there is a perceived problem. I think a lot of the problems in getting across the border have diminished over the course of the last few weeks simply because, as I said in my opening comments, when you go to the airport, in a lot of cases the lineups aren't that bad because there's nobody there.

So there is a real and a perceived problem.

Mr. Larry Bagnell: I don't know if anyone else wants to answer that.

The Chair: Mr. Williams.

Mr. Randall Williams: I'd echo Tony's comments. Wait until we get up to normal speed again, or what was normal. If we had more people travelling, I believe we would have bigger problems at the border crossings, on the ground as well as at the airports.

The Chair: As members of Parliament, we could suggest that you try to leave Ottawa at 5 or 6 o'clock on a Thursday. You'll see a big lineup. The security lineup is very long now.

That being said, we're going to turn it over to Mr. Rajotte, please.

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

I want to thank all the witnesses for their presentations today. Actually, right after the attack, I was stranded in Vancouver, so I know firsthand how some of the industries, particularly the hotel and restaurant industry, dealt with a lot of the increased capacity. I want to commend you and your members for what you did following the attacks.

We were in the midst of an economic downturn, which has obviously been exacerbated by September 11, but how do you determine what percentage is due to the attack itself? If we're in a downturn and the attack happens and it goes like this, what sort of methodology do we use to determine what is just general economic downturn versus the specific attack?

The Chair: Mr. Pollard.

Mr. Anthony Pollard: We track rates; we track occupancy rates right across the country, on a day-to-day, week-to-week, month-to-month, year-over-year basis. We knew that up until the beginning of September we were off about two percentage points in business travel and leisure travel was flat. Then we compare it to last year after that date, and we're able to see very clearly what the numbers look like for that period.

I would like to say also, as to projections, just so you know for next year, we're going to be flat in Canada in terms of the hotel industry.

Let me explain that. You're probably thinking, how can it be flat year over year with what happened? It's very simple. We aren't going to go through another September...touch wood; therefore our projections for the upcoming year are going to be basically about where we are. We've heard our friends from the restaurant association say the same thing.

If you compare us in 2002 to 2000, we're going to be off by about ten percentage points, but in our association we do track all the statistics on these things, and obviously businesses do the same.

The Chair: Mr. Macies, did you want to add something as well?

• 1615

Mr. Gerry Macies: Specifically, at our property, and it's a small property compared to some of the hotels in Canada—123 rooms—we had 10 tours cancel with specific reference to the threat of terrorism and their customers being afraid to travel. There were nine from Japan and one from Switzerland who said they were cancelling the bus tours because of the terrorist attacks. Also, we had four meetings cancel, one from the States and three from Canada, all related to the attacks. We asked them why they were cancelling, and they said because of the attacks.

If you went to the individual properties and members in Tony's association, they could pull out the numbers and information on why people cancel. It's not the economic downturn; it's because of September 11.

The Chair: Mr. Williams, did you want to add something?

Mr. Randall Williams: In the retail travel sector, we're attributing half of that 20% to 30% projection of the last quarter to the recession. The other half we're attributing to terrorism, the war, the fear of another terrorist attack, and so on.

That's how we've projected that. We're saying about half of the 30% projection is attributed to recessionary pressures. The other half is because of the terrorist attacks.

The Chair: Mr. Rajotte, very briefly, please.

Mr. James Rajotte: I have one quick question, perhaps to Ms. Reynolds.

You talked about the payroll taxes being a heavy burden on your members and about the increase that's taken place. Then you recommended, I believe, a $3,000 yearly basic exemption. Have you made recommendations about the premium increases in the Canada pension plan as well?

Ms. Joyce Reynolds: We've focused on the employment insurance account, although one of the things we have tried to do is get the inflation protection on the yearly basic exemption within the Canada Pension Plan restored, because that was lost when the CPP plan was restructured. So from that perspective, yes.

But our focus on premium reductions in the EI program relates somewhat to the fact that the reserve has accumulated to almost $40 billion.

Mr. James Rajotte: Thank you.

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

Mr. St. Denis, please, quickly.

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

Thank you for being here.

I want to say my riding in northern Ontario is like a lot of rural ridings in the country that depend significantly on tourism—and on forestry. So my area and many others are getting a double whammy right now with the announcement of a few hours ago.

The boating, summer lodge, and camping season was for the most part over by September 11 in the rural areas. What comes next, normally, is the snowmobile or snow-machine season, which wouldn't be in Toronto, Hamilton, or Burlington.... Do you have snow-machining down in Burlington?

A voice: No. They go to your riding.

Mr. Brent St. Denis: They come up to my riding.

This was true right across the country.

That's hundreds of dollars of tourism business. I'm just wondering if you have any indication of what impact, if any, there will be on the lodge and hotel operators who depend on the snowmobile tourism business.

Tony.

Mr. Anthony Pollard: Mr. St. Denis, yesterday when Minister Tobin was here he was talking about the creative campaign, that $20 million that's coming out.

I actually have reviewed the campaign and what the focus is on. Three of the four advertisements in it, both in television and in newspaper...and I'm sure if Jim Watson were here he would probably be giving me hell for scooping him on it, but Jim's probably at an opening somewhere. That's low, eh?

Anyway, they focus on the outdoors. This is going to be a major campaign, and obviously snowmobiling is part of that. Three of the four campaigns are very clearly focusing on nature and what we can enjoy during the winter. I think you're going to see some benefit will accrue to you in that.

The other thing is, in the tourism industry, we have to be very careful now when we're promoting Canada to the people in the United States that we do not try to capitalize on their misfortune. So what you do is you show a picture of somebody walking the street at night, but you don't say anything, if you understand what I mean. We're up against the same enemy as they are.

• 1620

But we are expecting—for the benefit of this committee—we will see people from the United States, particularly within an 800-kilometre radius, coming up here who may have been saying, “Oh, I was going to take a ski holiday in Val-d'Isère”, or wherever. But we have to be very cautious on how we position this, because they are our neighbours. So up in Algoma you could see some spinoff of this that might not have been there before.

Mr. Brent St. Denis: Do I have time for a short supplementary?

The Chair: Briefly.

Mr. Brent St. Denis: Thank you for that, Mr. Pollard.

To Mr. Williams, likewise with the travel agents. I use a small independent in my riding for my MP travel, and the owner came to me right after the unfortunate events of September 11. I won't name names, but I thought he was reasonably successful in working with HRDC in getting some kind of job-sharing arrangement. I think there's been some progress there. I wonder if you could characterize that progress. I think you make a good case, but I'm just wondering if you could comment on that.

Mr. Randall Williams: Well, Mr. St. Denis, you're obviously a very intelligent traveller using a travel agent for your buying decisions.

One of the comments I made in my presentation was that there is a job-sharing program offered by EI. What we're asking for, if this committee can help us, is to expedite the approval process. The process for approval on that is quite lengthy, but our businesses are being affected now. Employees are scared; they're wondering about their financial well-being. We were looking to expedite the approval process, put more people into vetting these applications. Also, it's targeted for small business. The one you're speaking of probably got approved rather quickly because it sounds like it's a smaller one.

Mr. Brent St. Denis: I think he was the first one in Canada. He was first off the mark.

Mr. Randall Williams: Okay, it sounds like a smaller business. But some agency groups that have 50 or 100 employees or so are having more difficulty getting their applications addressed, because it is targeted. That's the other item we wanted this committee, if they could, to put some influence on—to have it expedited as well as approved for the larger travel agencies.

Mr. Brent St. Denis: Thank you.

The Chair: Thank you very much, Mr. St. Denis.

I have Mr. Strahl, then Ms. Torsney.

Mr. Strahl please.

Mr. Chuck Strahl (Fraser Valley, PC/DR): Thank you, Madam Chair. Thank you all for coming. It's good to hear from folks to see how this is affecting industries within Canada.

Has your association made an official application to the government?

Mr. Randall Williams: Yes.

Mr. Chuck Strahl: To which ministry, Industry?

Mr. Randall Williams: Yes. We met with Minister Collenette on September 27, and we have provided him with briefs. We've also communicated with Minister Tobin, Minister Stewart, and Minister Martin.

Mr. Chuck Strahl: So they've heard it through official channels, besides this one.

The idea of the security perimeter that keeps getting floated about...in your opinion, is it the kind of thing that's going to ease the security concerns of Americans and Canadians? A lot of this is psychological. Is it going to calm those nerves and make people comfortable to travel within the North American envelope, or are we just wishing for too much here?

Mr. Randall Williams: Whatever we do is going to take some time to actually produce benefits and build some confidence, because right now it's shaken. The government, even though it implements new security measures, will need to promote those security measures so Canadians aren't confused about what they can take in their carry-on luggage, what the new rules are, how they're going to affect them.

• 1625

The government should be thinking about how they communicate to Canadian citizens what are the implications in the new security measures and what do they need to think about. Certainly we support a perimeter around the three countries because we agree with the Hotel Association that it would be helpful in building confidence in our security and safety in this continent.

A witness: If I may add, anything that's going to move goods and services and travellers freely around North America I think would help.

People hear about how there are potential terrorist cells in Canada feeding information to the United States. The idea of cutting that all off and making a nice cozy North American place to live and travel would I think make the travelling public feel at ease in their own homeland, plus travelling within Canada and the United States.

Mr. Chuck Strahl: Everybody's nodding. The last question I had was, have you see any kind of recovery or any difference between business travellers and recreational travellers? One's maybe more a sophisticated traveller. I don't know really, but is there a difference?

Mr. Anthony Pollard: What we're seeing in the last couple of weeks is business travel is picking up. However, the problem we don't know is that typically in July and August people don't travel as much for business, because, guess what, they're on holidays. The person you're going to meet with is on holidays. It's not a hard one to figure out. Then September rolled around and the first week in September is always a tough one because school's back. Then September 11 came and bingo.

Now what we're seeing is that, yes, for business travel the numbers are picking up, particularly in the last two or three weeks. But what's difficult to determine is, is it you, as a member of Parliament, suddenly saying, my goodness, I was supposed to have met with such and such a group and I didn't? Perhaps it's a bad example using an MP because your travel is a little bit more set. Or is it a business person in Vancouver who said, “I was supposed to have met somebody in the summer; they were on holidays and then September I didn't travel so I'm meeting them now”? Or is it new travel? There's no way you can quantify that.

Then as we move into November, certainly we're moving into the business travel season. Some 65% to 70% of all travel is business travel, it's not leisure, but we're moving into a period that typically is business, not leisure. There are certain unknowns. Unless we ask every person who checks into our 350,000 rooms, what are you doing here, which is probably illegal anyway—

Mr. Chuck Strahl: You could probably get into a heap of trouble—

The Chair: Don't go there.

Mr. Chuck Strahl: Yes, we won't go there.

Mr. Anthony Pollard: There's a little deviation there.

Mr. Chuck Strahl: Yes, there is a possibility, I would think, though, that you would get some clue because people book convention space.

Mr. Anthony Pollard: You can, but some of it is difficult to know.

Mr. Chuck Strahl: But business seems to have recovered.

Mr. Anthony Pollard: Business is starting to pick up a little bit.

The Chair: Mr. Strahl, I'm going to have to move on. Thank you.

Ms. Torsney, very briefly. We do have more witnesses coming.

Ms. Paddy Torsney: Thank you.

I would think that September 11 actually presents incredible opportunities for all of you, especially given that people don't want to travel beyond the borders; they want to enjoy small comforts in the neighbourhood restaurants or come and see Ottawa and your hotels, things like that.

I had to go to a wedding in New York in the summer and logged onto quikbook.com. I get inundated now with all kinds of specials and some great prices. Yet this weekend I have some constituents coming up who are middle-lower income and it's expensive to stay in a hotel in this city.

What are we doing to, as the airlines say, get bums in seats? What are we doing to get people in hotel rooms and get them into the restaurants? What are you guys doing? I don't mean just the new advertising money that's been put to it. There is an incredible opportunity for you guys.

Mr. Gerry Macies: In terms of the incredible opportunities, yes, it's nice I think to be able to take a few snowbirds and convince them to stay in Canada and see their country this year. However, we don't have the population base in Canada to be able to support our tourism industry. We rely on the tens of millions of Americans who come up every year to tour here. If they don't feel comfortable in travelling, just relying on our Canadian population base, we're all going to suffer. But I think it's a nice opportunity to introduce them to Canada again.

As for the hotels, everyone, if you look in the paper now, is coming out with all types of specials, for instance, partnering with Air Canada for the third night free in a hotel stay. All the different hotel companies are coming out with promotional campaigns now. Everyone is sitting back and looking at the winter season coming up and the turndown in business travel and are coming up with specials.

Ms. Paddy Torsney: How much is a weekend at your hotel?

• 1630

Mr. Gerry Macies: How much? Eighty-five dollars.

Ms. Paddy Torsney: That's still a little pricey for some families, but you know it's a question of can you get those shoulder people, those people who wouldn't travel otherwise, to come up and travel, and patriotically support the industry. I think there's a great desire to do that, but it's a little price sensitive.

Mr. Gerry Macies: I think the new money for the CTC with.... In Ontario, we have the Ontario tourism marketing partnership, which partners with individual business, destinations, and whatnot. There are going to be some creative things coming out for this winter travel, obviously, in terms of looking at the new...you want this weekend.

The Chair: Mr. Pollard, do you want to add to that?

Mr. Anthony Pollard: Randy's a former hotelier and we were just whispering to each other that hotels in Canada are the best bargain in the world, by far. If you're an American and you come up here, if you come here for two days, the third day is basically free. You can stay in a four-star or five-star hotel in Canada for under $200 a pop. Try doing that in London or Paris or Rome or Tokyo; it ain't gonna happen.

Ms. Paddy Torsney: But you're missing my point. Since September 11, I've had 15 messages from quikbook.com advertising all kinds of amazing specials, such as W hotels in New York for $99 or $150. Those are $350 hotel rooms. That's of interest. That says maybe I should think about this; maybe I have an obligation to get out there if I have any disposable income. Maybe there's an opportunity here; this is the time to take my kid to Ottawa because they're doing grade 5 studies. But if I never hear about them, if I'm waiting for these things to happen, you're not going to change my behaviour to get me to come up because now is the time.

Mr. Anthony Pollard: Canadian hotels are doing the same thing to the Americans. What you're getting to go down to the United States, the Canadian hotels are doing the same thing to their target audiences.

The Chair: Ms. Reynolds, do you want to respond?

Ms. Joyce Reynolds: I was going to say, there already is a lot of trading down behaviour going on. What's happening in our sector is that the fine dining restaurants are suffering and the quick-service restaurants are picking up as a result. One of the problems is our razor thin margins. You're not going to start serving dinners at a loss. That's the problem.

The Chair: Thank you very much, Ms. Torsney.

We're going to have to move on to our next group of witnesses, but I wanted to ask one brief question. In the last major recession there was an article—I'm not sure in which magazine, maybe Business Week—that talked about how during the downturn people will spend money on short-term entertainment, whether that be food, day visits, those types of activities. I know you've seen losses of tour bookings or conventions. Ms. Reynolds, have you seen any increase in lower-cost restaurants, or smaller establishments, or chain establishments? Have they seen an increase because people are being more frugal with their disposable income, yet they want to get out, they want to have a bit of entertainment? Are we seeing any of that?

Ms. Joyce Reynolds: We are seeing the limited-service restaurants, the quick-service restaurants, in some cases, picking up. That trading down effect is quite common. One of the differences between this downturn and the one at the beginning of the last decade is I think we're in better shape now. Interest rates are lower. There are a lot of positives there. We aren't getting hit with the GST the way we did at the beginning of the last decade, so that's going to make a difference. That's why we think, as many economists have said, that it's going to be a shorter-duration downturn and it won't be as deep as the last one.

The Chair: Thank you. I want to thank all of you for coming today. As Mr. Pollard quite rightly pointed out, I come from the Windsor area, and this has been extremely devastating to the local economy, as it has been for a number of border communities. I think the impact, though, is being felt across both countries and we must encourage people to travel and to continue their business meetings and their conventions because I think it's good for both of our economies. We appreciate your frankness, and we hope the $20 million that was announced yesterday will help revitalize the industry and maybe change those predictions of flat for next year.

Mr. Anthony Pollard: We hope so. Thank you.

The Chair: We'll stop for a few minutes while we change witnesses.

• 1635

• 1638

The Chair: Members should take their seats.

We're very pleased to welcome now the Aluminium Association of Canada, Mr. Chris Van Houtte, the president; and from the Canadian Construction Association we have Mr. Michael Atkinson, the president, and Mr. Jeff Morrison, the director of communications.

I would propose that each group do an opening statement. We would begin with Mr. Van Houtte from the Aluminium Association, unless you had a different agreement.

Mr. Van Houtte.

Mr. Christian Van Houtte (President, Aluminium Association of Canada): Thank you, Madam Chair and committee members, for giving us the opportunity to be here today to present the position of the Canadian Aluminium Association vis-à-vis the economic situation we're facing and the tragic events of September 11.

[Translation]

My name is Christian Van Houtte and I am the President of the Aluminum Association of Canada, a non-profit organization representing Canada's major aluminum producers, Alcan, Alcoa and Aluminerie Alouette.

• 1640

The association is directly involved in a number of areas and is also concerned with the economic issues facing the industry.

The Canadian aluminum industry is celebrating its centennial this year. It was on October 22, 1901, a hundred years ago, that the first aluminum ingot was cast in Shawinigan. Since then, the industry's growth has been exponential.

Total aluminum production for 2001 will be in the order of 2.5 million tonnes, which means that Canada is the third primary aluminum producer in the world.

The brochure you'll find in the information kit you were given describes in detail the Canadian aluminum industry and its many contributions to the economic and social development of Quebec, of course—because 10 of the 11 Canadian aluminum smelters are located in that province—, but also of British Columbia.

[English]

As with many other industries around the world, the Canadian aluminum industry has been subjected to considerable economic pressure. Even before September 11, our industry was already starting to feel the impact of the weakening global economy coupled with declining aluminum prices and demand. The tragic events of September 11 have added to an aura of economic uncertainty. And while it may still be too early to analyze the specific economic impact of September 11, we have no doubt that it is serving to negatively impact an already weak economy.

To give you an example of the weakening economy and the impact, I will refer you to some industry figures. The average price for aluminum on the London Metal Exchange is considerably lower than even one year ago, and significantly lower than the peak in 1995. Yesterday the metal was selling at $1,262 per tonne, which is the lowest price since 1992. In 1995 the same metal was selling for $1,800. So basically we are at a stage where the Canadian producers of primary aluminum are almost break-even.

Lower demand for aluminum can be seen by looking at the rate of growth in the overall industry production in the United States. While there was a period of steady growth up until the second half of 2000, since that time production levels have started to decline—a trend that continues today. This weakening situation is also reflected by the year-over-year figure on total U.S. domestic mill shipment.

We expect business conditions to continue to be challenging, and we are going to be facing a lot of problems over the next few months or the next few years. Each of the company members of the Aluminium Association have started several programs of cost reduction. For instance, Alcan,

[Translation]

the largest Canadian-based aluminum producer has recently announced a $200 million cost-cutting program to enable the company to maintain a profitable position. This $200 million cost-reduction program will have an impact on the company's profits.

Alcoa, the largest aluminum producer in the world, has also announced a restructuring program for its overall operations worldwide, in order to cut costs.

As for Quebec's Aluminerie Alouette, its international partners have also taken, in their respective countries, cost-reduction initiatives to minimize the impact of this recession.

• 1645

We should therefore expect that in the coming months, these companies will lay off employees around the world.

These are just initial steps taken these past few weeks to deal with the problem quickly. However, the industry also continues to improve its processes, in order to be more competitive in terms of energy efficiency and the overall use of our resources. This is an effort which will extend over the coming months and years.

We also believe we can readily promote the use of aluminum to contribute to our industries' development. For example, we believe aluminum could be used in the transports industry.

In the context of the initiatives which could be taken in favour of the aluminum industry, we should, of course, take into account the issue of cross-border trade.

[English]

Due to the highly intricate nature of North American markets for our member companies, ensuring an open and secure Canada-U.S. border will be of paramount importance. Canada is exporting 80% of its output, largely to the United States. In 1999 the export value of aluminum was $4.2 billion. The negative impact we experienced immediately following the September 11 attack clearly shows the vulnerability of companies to any border disruption. Although business at the border slowly returned to normal, we believe management of the Canada-U.S. borders has to become a high priority for both governments. The amount of cross-border trade is significant, and future policy has to ensure a free movement of both goods and people.

In this regard we believe calls for harmonized and secure North American perimeters are in order. The interests of all Canadians are best served by this approach, and free and unfettered access to the U.S. markets remains a critical economic asset for the Canadian aluminum industry.

We also believe it is important for the Canadian government to reduce the personal and corporate income tax burden in Canada, building on what has been done by the government over the past few years. This has to be part of a long-term strategy to retain both capital and human talent in Canada. We agree with others in the Canadian business community that the government fiscal course has to be one taken within a framework of fiscal prudence.

In the document we have given you, we also talk about NAFTA. There are a few issues that could be solved in the North American Free Trade Agreement regarding people and capital.

Also, one important impact for us will be the Kyoto Protocol. We believe the Canadian government should be very prudent before ratifying the Kyoto Protocol, since the U.S. government does not intend to pursue the same course. Because of our very highly integrated economy and relations with the U.S., it could have a very negative impact on Canadian industry.

Although we agree to reduce greenhouse gas emissions, although we favour voluntary action by companies, and although we favour action by the government for these reductions, we believe that within North America at least it should be harmonized with the United States. Therefore, we believe the government should be very prudent before officially ratifying the Kyoto Protocol.

One other thing of importance to us is that the machinery of government is still on a business-as-usual course. And while industry is trying to save jobs, to keep their plants open, and so on, it seems that the bureaucracy continues on the same path as usual. Of course this adds to the burden of an industry that is trying to stay alive in these tense moments.

• 1650

So basically we are all going to suffer from that. We believe, however, that the industry is strong enough to get over this cloud of bad news. Our chief economists in the various companies are predicting—but we cannot be sure, of course—that by the end of next year everything should be back to normal, and we are planning for that. In the meantime it is the time to streamline our operations, to be more efficient, and to be more conservative in the way we're doing business.

In conclusion, I would like to point out that if these few government policies are implemented the way they are described in the documents you have in front of you, it will certainly help the aluminum industry and other sectors of the economy to get over this situation.

These are the comments we have. As you see, we're not asking for any financial help. We feel it's not the time. We believe we can solve part of the problem ourselves, and we are looking forward to working with the government and other economic sectors to rapidly get back on a normal track.

Thank you, Madam Chair.

The Chair: Thank you very much, Mr. Van Houtte.

We're now going to turn to the Canadian Construction Association, Mr. Michael Atkinson, please.

Mr. Michael Atkinson (President, Canadian Construction Association): Thank you, Madam Chair.

The Canadian Construction Association certainly appreciates this opportunity to express its views concerning the impact of the tragic events of September 11. So that you don't tire from hearing my dull voice, Mr. Morrison and I are going to do a bit of a tag-team match here.

The Canadian Construction Association is the national voice of Canada's non-residential construction sector. We represent some 20,000 individual member firms in all regions of the country. The construction industry in total, including the residential sector, is Canada's largest employer. We collectively employ some 900,000 Canadians, according to the federal government's own statistics, and contribute approximately $139 billion to the nation's economy.

Obviously the reason for making those statements at the beginning of our presentation is to show you how important the construction industry is to Canada's economic well-being. Indeed our industry is an excellent gauge or bellwether of Canada's general economy—in fact as the construction industry goes, so goes Canada's economy.

[Translation]

Madam Chair, even before September 11, the construction industry in Canada was beginning to see the signs of an economic slowdown. After two or three years of significant growth, indications were that construction demand had begun to level-off, even decline. Construction GDP, in fact, was expected by the industry to decline by 1.4 % in 2001, compared to 2000, and to remain relatively static in 2002 and 2003. That was before September 11. Part of the reason for this GDP decline was a marked decrease in government capital investment, due in part to the wind-down of the national Infrastructure Program.

Our economic consultants, Informetrica Ltd., have estimated that the events of September 11 could have an overall impact on our industry which would trigger a further 0.3% GDP decline this year, in 2001, followed by declines of 0.8% in 2002 and 2003 respectively. It's a direct consequence of the September 11 attacks.

[English]

We have basically two areas of concern that we would like to raise with this committee. It is somewhat ironic now that senior officials from our organization, including myself, were in Washington, D.C., some three or four days prior to September 11, meeting with our U.S. counterparts. The key topic we were talking about was how we could make our borders more open not only to the free flow of construction equipment but also construction personnel, including personnel not covered by NAFTA.

• 1655

The construction industry south of the border and in Canada, because of the buoyant economic activity we've had over the last couple of years, has been facing skill shortages in certain sectors in certain regions of the country, and there was a common desire on the part of both our counterparts in the United States and Mexico to deal with this as a NAFTA group, so that if there were slow times, for example, in one sector in Canada and there was a need for workers in the U.S., we could try to ensure that workers from Canada could get there and take advantage of that economic activity, and vice versa. This happens, for example, in the industrial sector. You can have plant shutdowns occurring in Alberta at a different time of the year that shutdowns are occurring in parts of the southwest United States. The same kinds of crews and the same kinds of expertise are required to do that, and it was just seen to be a win-win situation for all concerned.

It's ironic that we were talking about that three or four days prior to September 11. Certainly, the climate in Washington was conducive to that kind of discussion, particularly being piggybacked on the move to legitimize undocumented workers in the United States. This was part of that.

Of course, that has now come to a halt as a result of the events of September 11. We hope it's just a deferral.

CCA has been very vocal and proactive in making the point to our NAFTA partners, our counterpart associations in the United States and Mexico, that, collectively, as industry associations, we must remain diligent in ensuring that all three of our respective governments do not unwisely choke off trade between our countries.

We need to ensure that our shared borders remain friendly to trade and that enhanced border security measures do not unduly restrict or constrict the free flow of goods and services. That is a concern we share with many groups, particularly because of where Canada sits. Our economy is driven very much by our exports and our favourable location with regard to one of the largest consumer markets in the world. So it's something we have to be cognizant about. We realize this is something that all three NAFTA partners have to be concerned about, that it's not just a role for any one government or, for that matter, any one national industry.

The second area of concern we have—and we've begun to see this already—is that the events of September 11 have already caused some governments in Canada to continue to neglect dealing with the serious decay of our vital physical infrastructure. We've seen at least one or two examples of this at the provincial level. Often the first thing that goes when governments find their fiscal house somewhat restrained or pressured is capital investments in roads, highways, sewage treatment facilities, and water distribution systems. There are many reasons this happens, probably because those investments may not show a yield for 20 or 25 years, and that's a very long time.

We are concerned that the events of September 11 are causing some governments in Canada to divert their attention from what is a very ominous, threatening problem in this country, and that's our infrastructure deficit. It's a deficit that could cause major negative impacts on Canada's quality of life, etc., in the future. With our concern about border crossings and other security measures and the adequacy of some of our essential infrastructure, we're concerned that rather than see the events of September 11 as an opportunity to put in place in Canada long-term, prudent strategies to ensure we're not caught “with our pants down” when a bridge collapses or we're concerned about public safety with regard to drinking water, etc.—we should have plans in place to ensure we don't get into that kind of mess. Ultimately, the state of our infrastructure will define the quality of life enjoyed by Canadians in the future.

• 1700

Canada, unlike our two NAFTA partners, has no strategy with regard to our national highway system, for example. It was a little embarrassing for us, when we were in Washington representing the Canadian construction industry, to hear what is going on in the United States and Mexico with regard to their long-term plans for bolstering and maintaining their national highway systems. We don't have one in Canada.

[Translation]

Mr. Jeff Morrison (Communications Director, Canadian Construction Association): Madam Chair, the cost to upgrade and maintain our key infrastructures, including our highways, continues to climb to the point that this infrastructure deficit threatens our quality of life in Canada, as Mr. Atkinson mentioned, just as much as did our national fiscal deficit and now our fiscal debt. Indeed this threat from within is just as ominous as any threat from outside our borders.

The federal government must implement a long-term infrastructure investment policy. This is the main point we want to underline. A long-term infrastructure investment policy is a necessary and required response by the government. Such a policy can easily fit in the context of a security agenda. I believe the government would be looking at such investments as airports, seaports, military installations, border crossings, international bridges and connecting highway systems and related structures are all part of a prudent strategic infrastructure plan for Canada.

[English]

Mr. Michael Atkinson: In conclusion, Madam Chair, our association and our membership are saying by all means, let us take the necessary steps to protect our citizens and to secure our fundamental freedoms, but not at the cost of our economy, our standard of living, and our quality of life. To do so would be to permit the tactics of terror to triumph.

We'd be pleased to entertain any questions or comments. Thank you.

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

We'll now go to questions. Mr. Rajotte, please.

Mr. James Rajotte: Thank you, Madam Chair, and thank you very much for your presentations today.

I do want to follow up on what you said about the national infrastructure deficit, as you called it. Have you a set of figures or an estimate as to what this will cost? You mentioned highways, ports, water treatment systems, and distribution systems.

Mr. Michael Atkinson: With regard to the national highways system, the Transportation Association of Canada, which includes officials from the provinces and the federal government and which is comprised of people who are knowledgeable about highways, etc., put the price tag currently at somewhere between $17 billion and $18 billion. They are proposing a ten-year program.

Mr. Alcock was involved in a transport committee report not too long ago that had an excellent plan for dealing with the need to refurbish our national highway system. Unfortunately, it's sitting on the shelf gathering dust. So the plan is there, and the amount and the priorities have been identified. There has been agreement with the governments on what constitutes a national highway program. It's all there. There's no need for further study.

With regard to municipal infrastructure, the Federation of Canadian Municipalities put that at about $45 billion. Certainly, the Canada Infrastructure Works program is a step in the right direction. We applaud it very much. Unfortunately, we tend to do things hand to mouth. We don't have any long-term strategies. We don't know right now, nor do any of the governments, what we are going to be investing in our infrastructure six months out. Here we are, the largest industry and the largest employer in Canada, with governments as our major clients, and how are we supposed to do any business planning when governments themselves don't know what they'll be doing six months out? We need to have a plan in place.

Mr. James Rajotte: For ports, what would you estimate that to be?

Mr. Michael Atkinson: I'm not sure. I haven't seen any hard numbers on that. I think, depending on the situation, many of those ports have been privatized or commercialized. That was probably a step in the right direction, because if you're running a private port facility and you have to attract business, etc., it better not be third rate or fourth rate. You won't get anybody there.

Mr. James Rajotte: In the first presentation, Mr. Van Houtte, you talked about a harmonized and secure North American perimeter.

Mr. Atkinson, would your group be on the same page on that issue as well?

• 1705

Mr. Michael Atkinson: Anything that is going to strengthen our trade with the United States and Mexico and ensure greater mobility for goods, personnel, etc., across the borders, we certainly are in favour of. Our industry knows—they don't have to be told—that they're one of the tops in the world. We can compete with anybody. We're not afraid of competition. In fact, quite frankly, the more we can get access to markets in the south the more it is going to really bolster both our industry and Canada.

Mr. Christian Van Houtte: Yes, I agree. I'm sure we can speed up the procedure at the border, for instance, for a high-volume, low-level of risk for all kinds of merchandise that is crossing the border on a daily basis. There are a lot of things that could be done to speed up the process while maintaining a certain security at the border.

We fully agree with what was said just before our presentation by the people in the travel business. It doesn't mean Canada will lose its autonomy by speeding up the process between the two borders. We are part of a continent, with Mexico and the U.S. We are trading a billion dollars a day. We have to have a system in accordance with the volume of business we're doing. It's not a small business. It's big, big money, a lot of volume, a lot of people travelling daily. ALCOA now produces 45% of the Canadian production of aluminium. It's an American company. Canadians are going to the U.S. and back and Americans are coming here. Alcan is established all over the world. So basically we have to design a plan and a system that is in accordance with the size of the industry.

Mr. Jeff Morrison: I think it's important as well, with the trading blocs being established across the world, like the European Union, that North America get its own house in order. Let's not kid ourselves. In essence, we are in competition with those other trading blocs around the world.

I know when we meet with our counterparts in Mexico, that's one of the things they very much stress, that it's important for there to be a North American response, if you will, to trade issues and to global economic issues.

The Chair: Thank you.

Thank you very much, Mr. Rajotte.

Mr. Bagnell, please.

Mr. Larry Bagnell: Mr. Van Houtte, I'm not familiar with the aluminum industry, but because it's a high energy user, is there any ability to take advantage of the low energy prices that September 11 caused, to get ahead on inventories at a lower price?

Mr. Christian Van Houtte: No. Because of the quantity of energy we're buying on a yearly basis, all the companies are signing long-term contracts. For instance, in Canada, basically there are two sets of rules. Alcan generates 95% of its own power in Quebec and British Columbia. ALCOA, which recently bought Reynolds Metals and Alumax, is in a contractual relationship with Hydro-Québec—a 24-year contract. The price is set according to a very complex formula, based on the price of the metal, and so on. In North America and in the world, we are among those with the lowest price of energy.

Mr. Larry Bagnell: In the construction industry, related to infrastructure, I assume you're a contributor to and a partner in NRC's $5 million infrastructure manual.

A witness: Yes.

Mr. Larry Bagnell: Great. There's been a suggestion made—just in discussions, not anything formal—that to reduce energy production, if it were mandatory that all houses had to be R-2000, or something similar, that would be one way to achieve that. Do you have any comments on that suggestion?

Mr. Michael Atkinson: Mr. Morrison may want to supplement some of the comments I'm going to make, but, first of all, as far as our construction industry is concerned, we see, quite frankly, the environmental areas as a major opportunity for us. We have firms in fact that specialize in land reclamation, in dealing with contaminated soils, in dealing with new building products. We are very much participating in energy conservation programs, where we try to encourage owners and designers to use maybe higher-end-priced materials going in, but because they give you energy savings down the road, you finance that up front with the energy savings you're going to get over the life cycle of a building. The federal government itself has a program in that area. We work very much with that.

• 1710

To answer your question, there's no question that sustainability is a major new move with respect to residential construction, and even more so in non-residential construction. We see more owners, particularly in the private sector, concerned about the life-cycle costs of their buildings, rather than the up front costs, realizing that the true costs are reflected over the 20- to 30-year life cycle of those buildings. So there's no question that those issues are all very important. We are very much interested in those areas because we see them as new burgeoning niche markets for our industry.

Mr. Jeff Morrison: If I may add to that, one of the ways Mr. Van Houtte and I met was at a meeting about a month or two ago at a government program, through the office of energy efficiency. It was called CIPEC, the Canadian Industry Program for Energy Conservation. Essentially the program's goal is to get industry to voluntarily reduce their energy usage, thereby reducing greenhouse gas emissions.

Right now quite a number of industry sectors are on board. CCA, at its recent board meeting two weeks ago, decided we were going to participate and therefore make energy reduction a very important part of day-to-day business practices.

When we hear stories, out of this CIPEC program, of small businesses of 25 people or less saving upwards of $100,000 to $150,000 a year through energy reduction, that quite frankly holds the interest of our members, not just from a monetary point of view, but also, of course, from the environmental side.

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

[Translation]

Mr. Bergeron, please.

Mr. Stéphane Bergeron: Thank you, Madam Chair. I'd like to ask a number of short questions, first to Messrs. Atkinson and Morrison.

In Quebec, we have a saying: when the building trade is doing well, everything is doing well. It was already estimated that, in your industry, growth would be relatively modest in 2001, 2002 and 2003. These past two days, we've heard witnesses who, one after the other, told us, indicated to us repeatedly that, even before September 11, they could see the first signs of an economic slowdown and that the September 11 events just accelerated a recession which was already looming ahead.

Now, in your presentation, I didn't catch your revised projections, taking into account the September 11 events. So, if no infrastructure or construction program or whatever were implemented, what would be your new growth, or decline, projections for the next few years, taking into account what happened on September 11?

A witness: As we mention in our document, the additional decline of the construction GDP will be 0.3% for 2001. For 2002 and 2003, it will be 0.8% each year. Before September 11, we were expecting the GDP to decline by 1.4%. Now, we have this further 0.3% decline. So for 2001, we expect a significant drop. We thought things would remain static in 2002 and 2003, but now, taking into account the impact of the September 11 events, we think that there might be zero growth.

Mr. Stéphane Bergeron: A few moments ago, the tourism industry people were talking about cutting payroll taxes. Yesterday, the mining industry and the steel industry people were advocating abolishing or, at least, reducing the capital tax. If you had to choose between the two, which option would you recommend we consider first?

Mr. Christian Van Houtte: In our case, labour accounts for between 12 and 15% of our production costs. So payroll taxes are important. Each year, we pay our Canadian employees about one billion dollars in salaries.

• 1715

However, it's the capital tax which is more problematic for us. As you know, it now costs between $1.2 and 1.5 billion to build the smallest aluminum smelter. Alcan has just started to operate a smelter in Alma, in the Saguenay region, which cost US$3 billion. That's quite a bit of money. So the capital tax has a very significant impact on that kind of thing.

And I would add that, as Mr. Atkinson was saying earlier, any program which could ease the movement of people and of goods would also be very much appreciated in our sector.

[English]

A witness: The only comment I would make is if we could do something with both, that would be great. Capital taxes are very insidious taxes on anyone. In our industry—and this is somewhat a myth—there's a belief that construction firms are large companies, but 95% to 98% of the companies working in our industry are small businesses, by anyone's definition. A large majority of them have less than 20 employees. A lot of them do not have the kinds of resources most firms have to look at new technologies and innovation.

One of the things we recommended before Mr. Bevilacqua's committee that we think would really help our industry is to provide a better incentive under an incentive that already exists in the Income Tax Act, and that's a small business deduction. The threshold of $200,000 for Canadian controlled private corporations hasn't been touched since 1982, or something like that.

That incentive was put in the Income Tax Act to allow small business to retain more of their capital, to reinvest in their people, innovation technologies, etc. It's really a tax deferral. It's not a tax loss to the government, but because the threshold is so small now and hasn't been indexed or touched, it's not doing what it was designed to do.

Here we have, in a new agenda coming out, the need for small business to become more innovative and invest more in their people and technology. There's already an instrument there, but we've forgotten about it. We really think small business could very much take care of that. We support that initiative more than some kind of government-directed specific tax incentive for innovation and technology because we believe the small business entrepreneur knows best where to invest his or her capital, in order to get the best innovation and better productivity out of their employees and their business. With all due respect, politicians don't.

Too often we are tempted to fool around with the Income Tax Act to try to get people to do things we believe, collectively as Canadians, are the best things to do, whether it's computerizing or Internet-based dot-com technologies. Then we try to reward them through the Income Tax Act, instead of saying to small business entrepreneurs in this country, “We are going to allow you to keep more of your capital and not have to pay tax on it, and invest where you think best, to improve your company, make your company more competitive, and train your workers so they're more productive, etc.” To us, that's a win-win situation.

On payroll taxes, you've probably heard quite a bit from the previous speakers. I happen to know where some of them sit when they're in front of the finance committee. But if we really want to try to allow small business in particular to continue to benefit and prosper, the best way to do it is to put their own money in their hands, to best direct and invest in their people and in their capital the way they think they should.

The Chair: Thank you, and thank you very much, Mr. Bergeron.

[Translation]

Mr. Drouin, please.

Mr. Claude Drouin (Beauce, Lib.): Tank you very much, Madam Chair.

I'd like to clarify a few things and I take this opportunity to thank our witnesses and to congratulate Mr. Van Houtte, since the aluminum industry is celebrating its centennial. It's indded well worth mentioning.

Mr. Van Houtte, you talked about expecting a few changes in the way the bureaucracy operates. I would have liked you to be a bit more explicit. What are you expecting from the government in terms of the changes you advocated in your presentation?

Mr. Christian Van Houtte: I think it's rather a question of putting things in perspective. The economic slowdown is not a surprise. The September 11 events made the situation worse and forced all industries—the hotel business, the construction sector or others—to respond quickly.

• 1720

However, within the huge federal and provincial public service system, it seems to be business as usual. No matter what. While we are trying by every possible means to save jobs and to be less technocratic in many ways, governments, whichever they are, continue to swamp us with draft regulations, bills and changes of all sorts.

First, no business in Canada is structured as a government. Second, when you have to respond to all this as well as wrestle with a difficult economic situation, where the objectives are not quite set or are ill-defined, it becomes impossible to manage. You don't really know whether you should focus on the proposed regulations or bills, or on climate change, or on trying to save your business. You get all mixed up.

This is not only true of the federal government, but the system being what it is, once the civil service is set to go in one direction, before it can be turned around, the economy will again be back on tracks. At least, I hope so.

I don't have the answer. The whole federal government system shouldn't be stopped, but I believe that if there could be less pressure for a while in some areas, people would be able to do other things.

Mr. Claude Drouin: Can you give us some examples of those government pressures?

Mr. Christian Van Houtte: For instance, under the Canadian Environmental Protection Act, Health Canada and Environment Canada are studying the 23,000 substances which have to be analysed within the next five or six years. Out of these 23,000 substances, 20,000 or so are probably not used by anyone, but that still leaves a few thousands to be analysed.

True, Health Canada and Environment Canada have a work plan in place to reach their objectives, but it represents quite a workload, because every company that uses or discharges one or more of those substances has to give Environment Canada or Health Canada details about the toxicity of theses substances, the biohazard risks, etc.

I know it's done in the context of a program, but should we really do that now? Wouldn't it be possible to delay that a few years? I don't think it would have such consequences on our health or our environment.

Over the years, we tend to consider some programs of that type as nitpicking, particularly given the kind of pressures we face right now.

Mr. Claude Drouin: Mr. Van Houtte, regulations are often changed at the request of concerned citizens. Government members and opposition members don't work on modifying the legislation because they like it. It's because there are needs or requests to do so.

I'd now like to turn to Messrs. Morrison and Atkinson. Mr. Morrison, you talked about the infrastructure program being phased-out, when we just announced a new infrastructure program. I was listening to Mr. Atkinson. You have to remember where we were in 1993, with a $42 billion deficit. We had problems everywhere. The unemployment rate was 11%. We had to act, and I think the government acted responsibly. We eliminated the deficit. We are bringing the debt down, which is important. The SMEs have repeatedly told us that reducing our debt was important and they are still asking us to do so.

That's one important point. At the same time, we are cutting taxes by $100 billion. And there is this $2 billion infrastructure program, which will be combined with the municipal and provincial programs, to respond to the most obvious needs in our municipalities and our communities. Plus—a first for the Canadian government, in a long time—we have allocated $600 million to roads, to contribute to the development of our highway infrastructure. Also, there is a new element in this $2 billion program, the construction of social housing.

• 1725

So important measures have been taken. That's the comment I wanted to make, Madam Chair. Thank you.

[English]

Mr. Michael Atkinson: Certainly we don't disagree with that. They were all very good steps. We would like to see them continue, though, and look more long-term.

Sometimes in the construction industry we are accused of being self-serving in this area: “Of course you want to build and see more investment in infrastructure because it means more jobs for the people in your industry.” Quite frankly, if that were really true, we would be here saying, “Don't do anything. Let the bridges fall; let the sewage treatment facilities become no longer functional; let the highways crumble and allow more deaths on highways, etc.; let the truckers all go south and no longer use our highways.” Do you know what? When you get there and you find you have to do something, the bill from our industry is going to be exponential. So if we were really self-serving, we'd say, don't do it, because eventually you're going to come to us anyway.

I've never heard anybody in Canada say, “We don't need infrastructure. Let the bridges fall; let the sewage treatment facilities rot; let our water distribution systems go to pot.” So it's not a case of whether we should invest or not invest. It's a case of how much and how are we going to do it?

I must commend the government for taking the lead in the municipal infrastructure area. For a long time we've had a running ping-pong match between the provinces and the federal government saying, “No, highways aren't my responsibility; that's yours. No, it's ours. No, it's yours.” I congratulate the government for saying, “Who cares? Let's show some leadership and do something about our municipal infrastructure. Let's bring governments together at the three levels and do something.”

We need planning in this country. We're not necessarily talking about throwing a lot of money at something. No, we need a plan. We need to know that these priorities will be taken care of. Where does that fit in our plan? Maybe it slips a bit because of the fiscal or economic times. Maybe we can't do it in year four the way we'd like to, but at least it's still in the plan.

We're the only G-8 country that doesn't have a national highway plan—the only one. It is quite discouraging to us to see what is happening in the United States and Mexico and realizing that, yes, those two countries are part of our NAFTA agreement, but they're also our competitors to some extent. You see what they're investing and what they're doing with their essential physical infrastructure and it's a bit scary for us. In fact, I don't know what we would say at a conference on North American highway systems. We wouldn't be able to bring anything to that table, because while we've been doing some, it's really been hand to mouth.

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

We do have $600 million set aside to start, or $150 million a year for four years, for highway infrastructure. I recognize though—

Mr. Michael Atkinson: Good start.

The Chair: —it's a start. We need more money.

Mr. Strahl.

Mr. Chuck Strahl: Thank you. Mr. Atkinson, you're a pretty good speaker. You might want to get into politics yourself, you know.

There are a couple of things. One is that the government is not really sure whether to proceed or, I would suggest, they are weighing the pros and cons of the innovation program. I don't know how familiar you are with that. Do you see the innovation program as maybe being about priorities? Is it something you think the government should press ahead with? Or is it, from your industry's point of view, the top priority, given that you scale things down from what's more important—ports, highways, access facilities, broadband Internet access? What in your opinion is going to crank things up the best?

Mr. Michael Atkinson: First of all, it's really looking at an infrastructure strategy that tries to integrate what is most efficient and productive to service and to lend support to the industries that depend on that. We're fond of saying—and it's true—we build the electronic highway. We do. We install the cable, etc. It's unfortunate that we haven't been able to do anything with an actual roadway highway, but anyway... I think from that perspective, that's part of putting a strategy together. What is more important? Should we be investing more in our port facilities?

Mr. Chuck Strahl: What do you think?

Mr. Michael Atkinson: I don't pretend to have all the answers in that area. But I'd love to see a committee brought together of people who are expert in the area with government officials from the various levels of government. Put them together with perhaps some kind of authority. Allow them to set the priorities and to say this is where we, as a country, think the first priority is to be.

• 1730

I don't pretend to have that answer. I don't think any one government pretends to have that answer. I think that's part of putting a strategy together.

Mr. Chuck Strahl: I don't disagree with you. I do sometimes worry that particular ministers promote particular programs for their own particular reasons, some of them good and some of them not. I'm not picking on any one particular minister, no matter how often or how recently they were before the committee.

Mr. Michael Atkinson: Yes, but just to pick up on that point, that's one of the reasons why it's not a bad idea, when you get into these areas, to put it in the hands of an authority, a third-party group, at arm's length perhaps.

Mr. Chuck Strahl: Something like our R and D—

Mr. Michael Atkinson: There's a federal bridge corporation that's been established to look at international bridges and to look at some of the larger bridges, where they've drawn experts....

If it is a concern, quite frankly, that investment in infrastructure is seen to be politicized at times—there, I said it—and sometimes causes short-term thinking in infrastructure, one of the ways to get around this is to have an independent authority, with experts, with the various government representatives from the various levels, looking at that problem on an ongoing basis.

Mr. Chuck Strahl: You may have something there. I had not thought of that. I know that's something I'm very much in favour of—for example, for military procurement—for that very reason, because things do get politicized. All governments are subject to this for pressures and budgetary pressure. Some of them are outside their control. But the problem often is, as you describe, when people feel pressured and make decisions, for good reasons maybe, but often because of the size of the protest outside—

Mr. Michael Atkinson: May I add something else?

The Chair: Mr. Strahl, your last question.

Mr. Michael Atkinson: Maybe, just in response to that, in the all-party committee I mentioned earlier—the committee report from the transport committee...Mr. Alcock in fact recommended a highway authority.

Mr. Chuck Strahl: The last thing—I think it was you, Mr. Atkinson, who mentioned that maybe we could take a little guidance from what happened in Europe, the free flow of goods and services....

I think the permanent security issue is key for all kinds of reasons, especially as the Americans are completely psyched out by this right now and they're not going to tolerate a whole lot of guff from anybody. So I think we have to find a way to maintain our sovereignty but have a permanent security system.

But does it concern you at all that in Europe you have a bunch of players, none of whom is really the kingpin or big guy on the block, but if we go to the same system here, we have basically one person calling the tune and everybody else dancing the jig? Is it something that concerns you in your industries?

Mr. Michael Atkinson: You misunderstood my point.

My point was that when we meet with our counterpart organizations in Mexico and the United States, our other NAFTA partners, the Mexicans in particular, keep stressing that we have to have a North American response vis-à-vis trade, vis-à-vis economic strategy, because of the balkanization of trade groups in other parts, like the EU.

Let's be very clear about it. The EU has become a much more competitive bloc with North America. We're going to stand alone, and if the three NAFTA partners sit there and say, “We don't have to worry about what they're doing in the U.S. or Mexico or Canada; we're just going to go our own way”....

The point being made here is we have to look more at a North American strategy to things like innovation, to things like productivity, to things like our essential physical infrastructure, because the bulk of the trade pacts that are being made around the world.... Not in any way, shape or form am I suggesting we mirror what's being done in the EU. We have to be more concerned about models like the EU, because it forces us, we believe, to have more of a North American response. You can't have a Canadian response, a U.S. response, and a Mexican response.

Mr. Chuck Strahl: Thank you.

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

Mr. St. Denis, please.

Mr. Brent St. Denis: Thank you, Madam Chair.

Thank you for being here. I'll be brief in view of the time.

I should just preface my remarks by saying that my riding in northern Ontario probably has the biggest stretch of the Trans-Canada of any riding in the country, nine and half hours of it by car one way. Mr. Morrison would note well—

Mr. Jeff Morrison: I know it very well, yes.

Mr. Brent St. Denis: —being from that area of the woods.

Some of the statistics that Jeff mentioned in response to a question by Mr. Bergeron I found very interesting. Given that construction projects typically are long—if they're of any size other than building a shed, there's quite a lead time preparing it and implementing it—are your forecasts based on anecdotal evidence that projects mid or early stream are actually being cancelled? Or is it that projects just on the drawing board won't be announced? I'm just wondering if the economy does bounce back—we all believe it will in the near term—that in fact we won't get there. I'm just wondering if it's possible to paint a more optimistic view of the construction universe over the next year.

• 1735

Mr. Jeff Morrison: There are two very short answers. First of all, we use an economic forecasting firm, Informetrica, to obtain our forecast. They have very sophisticated computer models that do look at the possibility of projects being cancelled midstream, for example. However, I should say for larger projects—for example, an oil sands project in Alberta, an offshore oil development in Atlantic Canada—obviously the possibility of that happening is very slim.

Having said that, though, one of the points we consistently make with the media and with people who are interested in what's happening in the construction industry is that we recognize something we call a gap factor. This is, as you mentioned, when a decision is made today by, for example, the head CEO of a major firm that they need to build an office building, of course the shovel isn't going to be in the ground tomorrow. There is a red tape process, a design process, which can take anywhere from 12 to 18 months, let's say.

So in fact when you look at the economic situation overall today—and as Mr. Bergeron pointed out, as construction goes in Quebec so goes the economy, which is true for Canada as well—you can actually project forward about 12 to 18 months how the construction industry will be doing because that lag effect will be in effect.

Let's take Ottawa. When the Nortels or the JDS Uniphases are facing severe downturns today and deciding not to build a new office building today, that effect in construction will be felt 12 to 18 months outwards.

So the predictions we're making—especially for 2002-03—for stagnant if not zero growth now with September 11 in fact reflect the realities of today on their business operations in 2002-03.

Mr. Brent St. Denis: That's very helpful. Thank you very much.

The Chair: Thank you very much, Mr. St. Denis.

Mr. Bergeron had one small question.

[Translation]

Mr. Stéphane Bergeron: Thanks for your indulgence, Madam Chair.

I wanted to do with Mr. Van Houtte the exercise we did with the construction people, and examine the impact of September 11 on the growth projections in the aluminum industry and on its development projects.

On page 3 of your document, you mention the possibility of using more aluminum in the automobile industry to reduce the vehicles weight. We know something of the kind is being contemplated at the GM plant in Boisbriand.

So is it having an impact on the aluminum industry's development projects and growth?

Mr. Christian Van Houtte: I'm going to give you a three-pronged answer.

The economic slowdown was felt before September 11. Car sales were already down. For instance, we know, in our industry, that around 25% of our production goes to the transportation sector, and there was indeed a drop in motor vehicle construction as well as car sales.

It's the same in the construction sector. Residential and commercial construction had started to slow down. Aluminum is used in doors, windows, structures, etc. There was a drop there.

After September 11, things got worse, of course. There was panic everywhere, all around the world, particularly in the United States where, a few months ago, there was an energy crisis. In the United States, the aluminum production has already been cut by almost 50%. Production in the United States, which was 3.2 million tonnes, has been cut by 1.5 million tonnes.

So the United States had already cut their production and other countries had increased theirs. We have already revised our projections for 2001 twice and we expect zero growth this year. We expected a 3.8% growth and now, we think it will be zero at year-end.

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In 2002, the first quarter is still going to be very difficult for reasons I just mentioned. If things get better in the construction sector, the impact will be felt in the longer run. It's only when sales of some consumer products—for instance, cars, etc.—are up that the impact is felt in the short term.

As far as investment in the industry is concerned, now would be the best time to build, as aluminum prices are low. We should be able to invest, and then start to operate when prices are high, not the contrary. Aluminum prices have always been cyclical. Right now, prices are extremely low, and it would be the best time to build. However, the power companies don't have the resources we need. For years, we've been trying to negotiate with Hydro-Quebec, among others, to expand some of our facilities, without much success, up till now.

Promoting the use of aluminum in the transportation sector is in fact a possibility. It would both boost production and be environmentally sound. Mr. Atkinson was talking earlier about the life cycle. For us, it's extremely important. As you know, producing an aluminum ingot requires a lot of energy, but the more it's recycled and reused, the more its net carbon content decreases. Every time, we save a lot of energy.

We were talking about innovation earlier. We firmly believe in new processes, new technologies and new products. Last November, the Canadian government announced that an aluminum technologies centre would be opened in Chicoutimi, Quebec. Thanks to a $45 million investment, the National Research Council of Canada will be able, in cooperation with this centre, to develop new applications and new products and thus increase aluminum use.

[English]

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

I want to thank all the witnesses for being here this afternoon. It's been a very interesting discussion. We do share your concerns about ensuring that the Canadian economy moves forward and we'll take your representations into our considerations and deliberations. We look forward to meeting with you again in the future.

Voices: Thank you very much.

The Chair: Thanks very much.

The meeting is now adjourned.