NDVA Committee Meeting

STANDING COMMITTEE ON NATIONAL DEFENCE AND VETERANS AFFAIRS

COMITÉ PERMANENT DE LA DÉFENSE NATIONALE ET DES ANCIENS COMBATTANTS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, February 17, 2000

• 0907

[English]

The Vice-Chair (Mr. David Pratt (Nepean—Carleton, Lib.)): I'd like to call the meeting of the Standing Committee on National Defence and Veterans Affairs to order. I'm standing in today for our normal chair, Pat O'Brien, who cannot be here.

I'm pleased to welcome members of the Marine Workers' Federation. I would ask Mr. Holloway, if you would, to introduce the people who are with you today, and then we'll get right into the presentation.

Mr. Les Holloway (Executive Director, Marine Workers' Federation, CAW): Bern Harty is a member of the Marine Workers' Federation's executive board from Newfoundland. Gary Marr is a member of our executive board and as well is vice-president with the local in Saint John, New Brunswick. And Terry O'Toole is the president of the largest local in our federation, which is the Saint John shipbuilding industry, the Saint John shipyards.

The Vice-Chair (Mr. David Pratt): Would you like to proceed with your presentation then?

Mr. Les Holloway: Yes, I would.

I'd like to open my comments by thanking the committee for allowing us the opportunity to make a presentation on this issue. My comments will touch on some of the document I passed around and made available to the clerk. If additional copies are required, if you contact our office or let me know at the end of this presentation, I will get some more copies to you.

I thank the committee for the opportunity to appear. I want to preface my comments by saying our sovereignty and our defence as a nation can only be achieved if we have a strong infrastructure, and a strong infrastructure has to include a strong shipbuilding industry and the infrastructure associated with a shipbuilding industry. That's the focus of some of my opening comments.

I say that knowing there has been continually a movement in the procurement programs and in the repair and major refitting of work to being outsourced away from the shipbuilding industry, so the support isn't there any more for the most part, with few exceptions.

The Vice-Chair (Mr. David Pratt): Could I ask you to hold for a moment? It's just been brought to my attention that our interpreters aren't here. For the benefit of all of the committee members, it's important for us to wait for them to arrive. I'm sorry to interrupt you.

Mr. Les Holloway: Oh, no, that's quite all right.

The Vice-Chair (Mr. David Pratt): They were here just a little while ago, and they seem to have evaporated.

• 0909

• 0913

The Vice-Chair (Mr. David Pratt): All right. Once again, Mr. Holloway, my sincere apologies for interrupting you in mid-sentence. Maybe we could just take it from the top.

Mr. Les Holloway: I'll just consider that a rehearsal then. I'll take it from the top.

I'd like to open by saying I would like to thank the committee, on behalf of myself and my colleagues who are here with me, for the opportunity to appear before you.

The issue I want to focus on in my opening comments—and obviously we'd be open to questions after that, if there are any—is the need for a shipbuilding industry if in fact we want to maintain a sovereign nation and maintain a defence in this country. You can't do it without a strong infrastructure, and a big part of that infrastructure has to be a shipbuilding industry.

There are things this committee can recommend that can assist in ensuring that when you require the shipbuilding industry to be there in times of need, in times of the defence of this nation and our sovereignty as a nation, it will be there. But it can only be there if we, in these times, support it where we can. I speak specifically of major refitting of naval vessels and replacement of vessels.

Specifically, the issue we have presently is we know there has to be a replacement of the supply vessels presently in service. They are of some age and need to be replaced. We would like this committee to consider making the recommendation that that should be moved ahead, considering the very serious situation we're facing in the shipbuilding industry today.

• 0915

So that's the emphasis of our presentation.

I would like to give an example, a very good example, of a country that recognizes very much the importance of that infrastructure and shipbuilding for their defence, and that's the United States. As we know, they've gone through a period of changeover in their shipyards and shipbuilding industry in the United States due to the cutbacks in military spending and what have you. But their government has taken the approach of very aggressively going after commercial vessels.

There are some good examples of how aggressively they go after it. Look at the revamping of the title XI financing package. That is touted as a huge success in the United States. It offers 87.5% of the cost of the vessel over a 25-year period, and that's for domestic and foreign buyers of vessels or builders of vessels. We have nothing in Canada that even comes close to that, but the effect is it draws work to American shipyards. Thus in a time of, call it demilitarizing, or the cutbacks in military spending in shipbuilding, it allows those shipyards to access commercial vessel construction, which maintains that infrastructure.

For instance, Litton Industries only last year was awarded, for the first time in some 40 years, a contract to build two cruise ships, a $1 billion program—the first in some 40 years. Why? Because a statute was passed by Bill Clinton a couple of years ago, a pilot project statute, that focused on wanting to get into that market. It's a broad strategy of wanting to maintain their shipbuilding industry, recognizing that in times of need you can't defend your nation without it. You have to have that infrastructure present.

The president of the Shipbuilding Association and I were invited to the shipbuilding conference in the United States to speak about the problems we're facing here in Canada. We had the opportunity to talk about our campaign and some of our initiatives in trying to raise the awareness of how serious the issue is in Canada with respect to our shipbuilding industry. I addressed their conference, which was held in Washington, D.C., and I want to say they are moving full steam ahead to make sure they can garner even a bigger share of the needs for commercial vessel construction in a time of transition to maintain that infrastructure. And they make no apologies for it.

For instance, they enjoy a luxury within the Jones Act that says all domestic vessels required in the United States will be built by Americans in American shipyards and fly the American flag with an American crew. In the NAFTA agreement we signed, we grandfathered the Jones Act. So we allowed the Jones Act to remain, which left us without access to their market, yet they can build vessels in the United States and import them to Canada, and because of the NAFTA agreement, they're exempt from the 25% import duty. So they have it both ways.

I spoke to that issue when I addressed their convention in Washington in early December. They make no apologies. They feel sorry for us, but they like very much how things are going. And the way things are going is not good for Canadian shipyards.

I'd like to speak briefly about some of the problems that face our industry. And they're not problems with the stakeholders. The stakeholders have done their work. There has been a rationalization program. I'm not going to get into whether it's something we think should have happened. It did happen. The rationalization brought shipbuilding capacity down in this country to meet a demand that I would argue never existed in the first place, because we didn't put the good, sound policies in place that would allow the shipbuilding industry in this country to compete. Nonetheless we did that.

We've also gone through a huge restructuring within collective agreements and within our relationship with employers and have done things that have increased the competitiveness and the productivity of the shipbuilding industry in Canada. But after we do all that, we still are faced with a very lopsided international playing field.

Look at what's going on abroad. If you look to Europe, you'll see huge subsidies in the shipbuilding industry. If you look to Asian shipyards, you'll see huge subsidies. We've never taken the position that we want to get into the subsidy war issue. Our document doesn't speak about subsidies; it speaks about putting in progressive policies, such as financing policies.

• 0920

In Canada we have, as the Minister of Industry will tell us, a financing package for the building of ships through EDC. It's for 12 years and 80% of the cost of a vessel. Anybody who has bought a house over 12 years versus 25 doesn't have to do the math to know the cost is substantially greater on a 12-year mortgage.

That's the only program we have, and it doesn't apply to domestic shipbuilding needs. We can't access it for our own domestic needs. We can only use it if we export vessels, and then it's completely unable to provide us with the ability to compete because of things such as title XI financing.

I want to refocus and go back to the key issue we are presenting, that we want this committee to take the position that we need a shipbuilding industry in this country. Make no bones about it, somebody must recognize very soon that policies have to be put in place that allow us to play in the game and compete equally, at least. Don't give us any more than what the Americans have, but at least afford our industry the opportunity to play by the same rules.

We're told we must compete globally, but after we're told to compete globally, we are not afforded the same rules to compete by. We don't have a Jones Act. I mentioned to you the exemptions the Americans have with NAFTA. They can import ships in Canada completely duty-free of the 25% tariff. They can import every domestic ship we require into Canada. We can't import one domestic vessel into the United States because of the Jones Act. They have their title XI financing.

One of the best examples I can give you of what that actually means to us is our offshore is booming in Nova Scotia and off Newfoundland. Secunda Marine Services is a company that supplies services to supply vessels to rigs and platforms off our coast. They accessed, in 1997, title XI financing. They built two vessels in a Mississippi shipyard and got 87.5% financing for 25 years. They brought them in duty-free. They're working our offshore, profiting from our natural resource. If anybody can sit here and tell me that's fair and those are rules we can compete with, we're dreaming in technicolour.

The reality is if we don't correct those imbalances in policies, and if it isn't stressed to the federal government in the highest possible manner that these inequities have to be addressed, we are not going to have an industry. I think that also means very few people in this room will have jobs, because you can't have a defence without a strong shipbuilding industry.

We have to find innovative ways in Canada to create a solution to the problems we have in shipbuilding; a Canadian solution to the problems we have. We're not saying we want to get into the subsidy wars, as I mentioned earlier, with the Europeans and the Asians. We are saying if our financing package is so inadequate, compared to what is offered to others, we should be addressing that.

We have writedown provisions in Canada for the purchase of vessels that are great—they are pretty decent—but nobody's buying vessels; they're leasing vessels. We have to find ways of dealing with that because that's another issue we face. Owners of vessels do not build to buy; they build to lease. So the writedown has to be more favourable on the leasing of vessels. We have to look at tax incentives and other issues that would bring in owners of vessels to build their vessels here.

The shipping association made a presentation to the committee on industry that I had the opportunity to sit in on and listen to. They'll tell you 60 to 70 vessels will have to be replaced or modified in a major way over the next six to seven years. But they'll also tell you that without any policies that at least deal with these inequities we face in Canada, none of that work will be done in Canadian shipyards. That's a pretty sad commentary. That's our own domestic work.

• 0925

A lot of it can be done in shipyards, such as Saint John, which is facing closure in a couple of months. This is a shipyard that built the state-of-the-art vessels, the frigates—some of the best vessels that float in waters today. There is some of the highest technology in those vessels. I don't have the exact stats, but there is some 11 times more technology in a frigate than in the most sophisticated aircraft we build in this country. So the technology is there.

If you walk through the shipyard, you'll see a state-of-the-art facility. The infrastructure is there. In the Halifax shipyards, the infrastructure is there. If you go to Newfoundland and look at their Cow Head facility and their shipyard, the infrastructure is there. It's very high-tech.

We have the skilled workers. We have them because the Americans want them. They're coming and setting up shop in hotels. They're interviewing our people and asking our union to buy into sending our workers to the United States to work. So we have the skilled workers too.

We need some assistance here. We need the federal government and this committee to be part of the solution. We need the government in this country to say that what's good enough for the Americans.... If NAFTA's good enough for us to play in—we agree we're in it and we're going to play into it—give us the same rules. Allow us the same advantages our competitor nations have.

If you do that, I assure you we will have a shipbuilding industry in this country that will last well into the future. We will not be a dominator in the world in shipbuilding any more; we understand that. But we can carve out our own little niche.

I want to touch on an issue that was continually raised in meetings our federation had with Minister John Manley. We specifically discussed the issue of this overcapacity in the world when it comes to shipbuilding. If that's a reason for doing nothing in Canada, it's not very much of a reason when you consider that if we could garner just 1% of the world market in shipbuilding—when I say world market, included in that is our own domestic shipbuilding needs—our shipyards would be working to overcapacity. We would be overflowing with work in Canada.

Rather than focusing on some superficial 40% overcapacity that is created by an Asian shipbuilding industry that is completely out of whack with the realities in the real world because of the huge state subsidies that have been put in those yards, we should be concentrating on the piece we can chew. We should be concentrating on the 1%. We should be focusing on what we can do to maintain our industry in Canada.

We don't want to sit here and talk about what we can do to compete with Asian shipyards. We don't want to talk about what we can do to compete with American shipyards. We want to talk about what we can do to focus on garnering a piece of the market in this world, and how we can put policies in place that will ensure that our industry at least plays by the same rules and is in the same game.

I'll finish my comments and open the floor by just giving you some idea of how much support there is on this issue for our Canadian shipbuilding policy. It's becoming increasingly mind-boggling how we can continue to meet, talk, and raise this issue, and not get a favourable response from the federal government.

We have the support of the Canadian Chamber of Commerce. At their convention earlier this year, they overwhelmingly supported the call for a summit to talk about the issues that are facing the shipbuilding industry and try to find solutions. They are the largest business organization in this country.

The Canadian Federation of Municipalities supports the call for a meeting to talk about the issues that are facing our industry. Canadian premiers in 1997 and again in the middle of last year came out supporting the need for a meeting and for the federal government to do something in the shipbuilding industry.

The shipping association says if we don't do anything, it's somewhat concerned what shipyards are going to be left to even repair our vessels. Will we be taking our vessels to the United States to get rudders or screws put back on? That's how serious the issue is.

In closing, in this country we presently have about 1,000 shipyard workers. I'm talking about those who actually build the ships. In our Marine Workers' Federation we now have less than 600 production people working in shipbuilding. That's down from some 3,000 just a year and a half or two years ago.

• 0930

Our industry is dying on the vine. It's dying. If somebody doesn't do something, the members we represent are going to be without work, and their families are going to hurt for a long time.

There are two things we want specifically to request of this committee. One is to make a recommendation to the federal government that a summit be held to discuss the serious crisis in the industry, a summit to start to talk about a Canadian solution to our problems, to look at what is being done in other countries but determine policies that fit with us, policies that are sustainable, policies that are reasonable.

The other thing we wish to raise formally with this committee is that this committee should strongly recommend that, because of the present crisis in the industry, what we should do to maintain that infrastructure in the short term is move ahead, with haste, the building and replacement of the supply vessels. That has to be done. It would create at least some work for the shipbuilding industry in the short term. But this is not just a short-term issue. A long-term fix is required.

That's our presentation. That's our request, in two bits, as to what we would like this committee to do. I would stand open for any questions, as would my colleagues.

The Vice-Chair (Mr. David Pratt): Thank you very much, Mr. Holloway, for your comments.

We have Mr. Hanger on our list—number one on our list, number one in our hearts.

Mr. Art Hanger (Calgary Northeast, Ref.): Thank you, Mr. Chairman.

Thank you, gentlemen. I do have a couple of very quick questions.

First, just for clarification, your publication, A Shipbuilding Strategy for Canada, indicates that the Shipbuilding Association of Canada as well as the Marine Workers' Federation compiled this publication. Are there representatives of the Shipbuilding Association of Canada in your group?

No. So you're all union?

Mr. Les Holloway: No. The Shipbuilding Association of Canada is the employers' organization that represents shipyard owners right across the country. This is a composite document of support from both the specific stakeholders.

Mr. Art Hanger: Employer and employee.

Mr. Les Holloway: As for the other three, we are the Marine Workers' Federation/CAW Canada. As well, though, we have the support of the Fédération de la métallurgie, some 250,000 CNTU members in the province of Quebec, supporting the call on this. The Shipyard General Workers' Federation of British Columbia is the workers' union organization that is also supportive of this document.

Mr. Art Hanger: Okay.

Now, traditionally, I gather, your unions have supported the NDP. Have your unions traditionally supported the NDP?

Mr. Les Holloway: Well, I think traditionally we support parties and members of Parliament who support our issues, the issues that are important to the people we represent. I don't know if that answers your question well, but obviously all workers aren't voting for NDP or they'd be the government.

Mr. Art Hanger: I think that's an important issue, though, too, because there's a distinction between policies of a lot of the parties. Ours, the Reform Party, has insisted on an increase in defence spending. I know traditionally you supported NDP because of the union ties with that particular party.

To my way of thinking—

The Vice-Chair (Mr. David Pratt): If I could just interrupt here, the political preference of the union is not an area of questioning that deals with the issue before the committee.

Mr. Art Hanger: Well, I'm going to get to the point. If you don't mind, I'm going to get to the point.

I think that's a key issue in terms of understanding what has happened to the shipbuilding industry in this country. If you look at current government spending for the next five years, you're not going to see too much in the way of what you're referring to.

You're talking about building warships, plain and simple, or support for warships as part of your presentation to this defence committee. In our own policy, Reform's policy, we looked at that as being a very specific need—that is, new support ships for the navy, replacement of the Tribal class destroyers, and some new corvettes for offshore patrol.

• 0935

That, we would suggest, would have to be a long-term plan that any government should be looking at today, but I don't see it as something that is necessarily going to be on the agenda for some time to come under the current circumstances.

Now, as to where you're going to get the level of support that you feel is necessary to put that together, I don't know, or not as long as the present government situation is in place.

As to whether your industry is going to survive, well, I don't know what it's going to look like in another two years. Maybe you can tell me.

Mr. Les Holloway: I don't know if you caught what I already outlined on what support we have. The level of support we have is unprecedented in the country on a single issue, I would say.

I've outlined the business organization that is supportive of this issue. I've outlined the municipalities. The Federation of Canadian Municipalities right across the country is supportive of this issue. The Canadian premiers are supportive of the issue.

Mr. Art Hanger: I agree.

Mr. Les Holloway: So I don't know where you would...the level of support.

As well, I mentioned supply vessels. I didn't mention warships. I would just remind you, too, that during the Gulf War our supply ship was called the “chuckwagon”, I think, by the Americans because it was bringing food and supplies that were necessary for those who were there.

As much as we don't like situations such as the Gulf War occurring, we know there may be, in future, situations that require us to have a capability. We have to have supply vessels that would in fact fill that role. The supply vessels have to be replaced.

I'm only raising that in terms of a short-term fix. It's not the major issue.

I don't know if that addresses your points.

Mr. Art Hanger: I think it does, sir. I see where you're coming from as a union representative. You're undoubtedly speaking for a lot of union members who are in that industry, but I believe you're also speaking for a lot of business organizations across the country when it comes to the survival of the shipbuilding industry.

My point, I guess, and I believe it's one you should direct to the government side, is that the budget for defence is nearly frozen at the present amount. So where is the money going to come from to build the ships required, even as we see them rusting out in the navy right now, whether they be supply ships, whether they be destroyers, or whether they be corvettes? We see the need, but....

Mr. Les Holloway: Perhaps I can respond by saying that I think that's the work of this committee, to make recommendations to the government on what spending, in defence terms, should be provided, and what spending should be included in the budget. I would say that would be more the work of this committee.

If I may, I would touch very briefly on the issue of the people we represent. Yes, we represent workers who work in the shipbuilding industry, but I think the issue is a much bigger issue than even we represent. As I said in my opening comments, it goes to the core of our sovereignty as a nation and our want to maintain the defence of that nation. You can't do that, in our view, without a strong shipbuilding industry and the infrastructure required to prop up and support our strong defence. That's the thrust of our comment.

I would end my comments to you by saying you should focus well on what we're asking. We're not saying this document has the solutions to the problems in the industry. We're saying that's our view as to what the solutions to the problems in the industry are, but we're asking that this committee support our call for the federal government to initiate a summit, a meeting of stakeholders nationally, recognizing there's a crisis in the industry; recognizing that there are both solutions and things we might be able to talk about to fix them; and recognizing that we should try to find a Canadian solution to the problems we face if we want a shipbuilding industry.

I think this committee should want to be very firm in support of us needing a shipbuilding industry, just for the very work of this committee. To sit down and talk costs nobody anything. We're not saying we have necessarily all the answers. We're willing to hear what solutions might come from other areas and what ideas may be out there from other interested parties. We want to be able to debate and have tabled the federal government's position on this. But we want to have a discussion, a broad discussion, on this, a discussion that is national in scope, a discussion led by the federal government, so that we can start talking about how we can fix the problem.

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There is truly a crisis in the industry, and the industry's very existence is what we're talking about. Do we want it to exist? I think we should want it to exist. That's the basis of our request.

The Vice-Chair (Mr. David Pratt): Thank you, Mr. Holloway.

I'm going to move on to Mr. Laurin.

[Translation]

Mr. René Laurin (Joliette, BQ): I would like to begin by asking a few short questions to get some information. I can't really say that I understand the basic nature of the problem you have talked about.

Do you believe there are too many shipyards in Canada? Can the market accommodate all these shipyards on the east and west coasts, as well as in Quebec?

[English]

Mr. Les Holloway: Well, that was the whole debate in the decision to rationalize the industry. Initially, some dozen or so years ago, when that was first implemented, that was the very issue that was at the core of the debate and of the decision of the government of the day.

I would say to you that we took the position then that until you've at least provided us the same playing field, to talk about capacity issues and whether there's overcapacity.... Surely there's overcapacity now, because we are not on the same playing field. We're not in the market at all. We can't compete. But it's not because there are too many shipyards. We can't compete because the policies are so overweighted in favour of our competitor nations.

If you go to every other nation in the world, they have specific policies directly aimed at securing shipbuilding contracts and luring foreign shipowners to build in their country, and very aggressively. That's exactly the point I was making about the Americans on title XI financing in the Jones Act. They are targeting and specifically focusing on how they can maintain their shipbuilding industry and lure shipowners to build in their country. That's exactly the type of thing we're saying we have to do first.

So on the issue of whether there are too many shipyards, I would say the answer is no. The problem is, we have to at least get on the same playing field. Then if we want to say the market rules after we're on the same playing field, we'll know whether or not there's an overcapacity issue. But it's because of no policy; I don't think the overcapacity issue is one that should get focused on.

[Translation]

Mr. René Laurin: Do Canadian shipyards compete against one another or are they each specialized in different areas? Can each of these shipyards all build the same type of vessel? Do they all have the same expertise?

[English]

Mr. Les Holloway: No, they're not all building the same types of vessels. For instance, Spirit of Columbus, which was done in the Davie yard, was an oil rig converted to a large platform—

[Translation]

Mr. René Laurin: I'm sorry, but I did not ask you whether they did different things. I asked you whether the shipyards could all do the same thing or whether some shipyards specialized in the construction of a certain type of vessel, and others in another type of ship. Do they compete against one another for shipbuilding contracts or do they each have a niche, thus competing for different types of contracts? This would explain why there is or isn't, as the case may be, competition between the shipyards. That's what I meant.

[English]

Mr. Les Holloway: I was giving you an example of a job that was done in Quebec. The only issue that would determine whether any shipyard could be competitive on a given job would be, for the most part, size. Most shipowners aggressively go after all work that's out there, especially in a country that has no policy that will support the industry, but there is a natural occurrence—that is, shipyards will fall into place in certain market areas.

• 0945

For instance, the Halifax shipyard is very much a large repair yard. In order to offset overhead costs, they do small vessel construction such as the supply vessels or the coastal defence vessels that were built. That allows them to be more competitive on the repair market.

Saint John is not in repair work at all. Saint John is a large shipbuilder. They build obviously the frigates, as we talked about, but they also build container ships. They presently are finishing a second container ship, but the size of the yard kind of dictates how that goes.

If you go to Newfoundland, they're into a lot of offshore fabrication units and rig work and stuff. I'm trying to say there's a flexibility within the shipbuilding industry to accommodate what work might be out there.

In B.C., they're building the ferry. They tried to get a niche market in that design from Australia to build the fast ferry, an excellent vessel. We were out there for meetings last week and we sailed on it. It's a great vessel and I think a great tribute to the workers there. It got some bum raps but technically it's a very sound vessel and it may be very marketable. Hopefully it is.

It's kind of a niche thing when you look at an aluminum-hulled, twin-hulled vessel. I think that's a natural occurrence. What happens is that owners of shipyards will focus on areas where they can get a piece of the pie. If there are only six container ships to build, that represents seven years' work. Every shipyard trying to get one of those to build is not going to be at any advantage.

The other major issue that naturally dictates that is the issue of the learning curve, economies of scale. The first frigate they built in Saint John was huge in terms of the hours that were spent. The last frigate they built in Saint John...there's nobody in this world that could compete and build a vessel of that standard, in that time, and at that cost, because the learning curves are out of it.

I live on the east coast and I get offended when I hear the B.C. ferries getting the rap they get. That's a prototype kind of project. They're trying to get into a market. There is a cost involved in trying to get there, to create the first of something.

I use the analogy of Buzz Hargrove, the president of our national union. Would Chrysler make any money if they built three minivans and tried to market them and sell them? Would they make any money if they built three Concordes or what have you? They'd lose their shirts. They spend hundreds of millions, even billions, of dollars on one vehicle but then when they get into production they come out and they become profitable.

I think the answer is that with the right policies there's just a natural occurrence of shipbuilding shipyards carving out their own little niche. It's no different in the world. When you look at Italy, they focus on things like cruise ships, and if you go to Asian shipyards they are into a lot of the container ships and that type of thing. So that naturally would happen in this market too, in a domestic market, if in fact there were some policies that allowed us to get into the market.

The Vice-Chair (Mr. David Pratt): Mr. Laurin, I'm going to have to cut you off there. You're well over your time right now. I'm going to go to Mr. Proud now.

Mr. George Proud (Hillsborough, Lib.): Thank you, Mr. Chairman.

Welcome, gentlemen, to our meeting this morning. I happen to be one of the ones you don't have to convert. I believe in what you've said here this morning. I'm from the east coast and I know the problems the shipbuilding industry is facing.

The Atlantic Liberal caucus has been working on this shipbuilding policy for some time. We've met with you people before. We met with the employers' associations. We're working very hard at trying to get the ear of the minister and the department to make sure we can change the shipbuilding policy so that we have, for want of a better word, a Jones Act of our own.

I also believe a meeting of stakeholders is very necessary and I'll be pushing toward that. I hope this committee will be making recommendations that the kind of summit you talk about takes place. I think this will do a lot to get us into the situation we want to be in.

The Jones Act in the United States scares me a little bit because of another thing. In all the time I have known the government to be building warships, whether they be destroyers or frigates or supply ships or whatever the case may be, they've always gone to Canadian shipyards. There's a new buzzword around military today, and that's off-the-shelf. If you can get a product that's as good as you can get in your own home yard, why not buy it somewhere else? Even with the frigates we built in Saint John, a lot of the stuff that was in them wasn't from Canada, a lot of the electronics, the gunnery, and things like that.

• 0950

We have to be careful. This is the thing that scares me, if we don't have our own shipbuilding policy, if we don't have some kind of policy that says our ships must be built in Canada. Maybe there is; I don't know about that. The thing that scares me with this word “off-the-shelf” is that maybe we don't have to do that.

I agree with your presentation this morning. With the number of organizations and people you have behind you and the number of organizations in Atlantic Canada that are behind this, I think we can get this policy the way we'd like to see it, hopefully in the not too distant future.

Mr. Les Holloway: I'd just like to say that scares us too. A glaring example of how we are starting to move towards that is that we are presently seeking to purchase a ferry to run between Nova Scotia and Newfoundland. This is a non-military purchase. This is a ferry that could be built in Atlantic Canada, in the Saint John dry dock, for a song. The last ferry, for instance, was built in the province of Quebec, the Joseph and Clara Smallwood.

Rather than creating a strategy to deal with the capacity problems of ferry traffic between Nova Scotia and Newfoundland, rather than working with the strategy of a short-term lease and then the building of a vessel in Canadian shipyards, we instead go to the off-the-shelf kind of thinking where we just purchase a vessel from outside the country and use it. That's work that could assist our industry in staying afloat in the short term while we work on the big issue of finding solutions to the problems we face.

I just wanted to make the comment that it is already heading that way, and that is a scary situation.

The Vice-Chair (Mr. David Pratt): Mr. Proud, any further questions?

Mr. George Proud: Not for now.

The Vice-Chair (Mr. David Pratt): From the Liberal side we still have three and half minutes.

[Translation]

Mr. Robert Bertrand (Pontiac—Gatineau—Labelle, Lib.): Mr. Holloway, I have to admit I'm not an expert in the shipbuilding business. I have a question about the Jones Act.

The United States must liberalize their trade, as does every other member of the WTO. Do you know whether a country has launched a suit under the WTO against the United States to repeal the Jones Act?

[English]

Mr. Les Holloway: The only initiative I know of that attempted to deal with the subsidy issue worldwide is the OECD. That was a failure. The Americans as a signatory to the agreement would not sign on because the Jones Act was part of what would have to be relinquished or done away with. The Americans wouldn't agree to doing away with that. That was the only initiative I know of with the Jones Act.

Under the NAFTA agreement again, the Americans and their negotiators obviously very firmly took the position that this had to stay entrenched in any agreement, so they grandfathered that completely. I'd like to say we've never taken the position that we want to necessarily create a Jones Act in Canada, even though that would just be great.

We've taken the position rather that in the issue of free trade, as they term it, the Jones Act should not apply to NAFTA countries, just as the 25% import tariff doesn't apply to NAFTA countries. That's the way it's written. Well, the Jones Act shouldn't apply to NAFTA countries. That would kind of balance that out and give us access to the domestic market, which is something that would obviously be very favourable to us. There's obviously a lot of pressure south of the border that this not happen.

The Vice-Chair (Mr. David Pratt): Thank you, Mr. Bertrand.

Mr. Earle.

Mr. Gordon Earle (Halifax West, NDP): Thank you, Mr. Chair.

First I'd like to commend Les on his presentation. I'd like to say also that I'm not surprised at my honourable colleague from the Reform Party's approach to this issue and the attempt to somehow make this a partisan issue and tie it in with unions and so forth. I think that's simply disgusting. This issue is one that is of importance to all of us and to all Canadians, regardless of political affiliation, and I think we should look at it in that manner, which is being done by most reasonable people.

• 0955

I'll move on from there with my specific question. I noted in your presentation you emphasized that the United States is very aggressive in putting forth its policy to protect this shipbuilding industry, and there certainly seems to be a strong political will there to protect and maintain that industry. Is this in fact what it comes down to in Canada?

You've already indicated that the owners, the workers, chambers of commerce, and everybody, are on side in supporting that there must be a policy, and I certainly support that. I've emphasized this many times. But does it come down to a lack of political will on the part of the government to really move forward and take an aggressive approach? Is this what it really comes down to in the end?

Mr. Les Holloway: If anybody looks from the outside in, I would think most would look at that.

I get questioned by reporters, and they say, tell me, why is it that they're not willing to meet? Why won't they convene a summit? Look at what's happening in the industry.

In Atlantic Canada, over 70% fewer people are working in the industry now than when the federal Liberal government came to power in 1993. You think about that. With the cutbacks in government spending and what have you, there's less work being done on a lot of vessels, government vessels. That's a real statistic, and with no work on the books, we are looking at the decimation of the industry in Atlantic Canada.

Out on the west coast, they have one more ferry to build, and because of some, I think, terrible coverage on some of that, that could be hurt.

We know what's going on in the province of Quebec, with the Davie yard. They're in some tough times now. So, really, the issue is, do you want to maintain an industry?

There are a few areas, such as Port Weller in St. Catharines, that have a bit of work going on now, but they'll tell you themselves that in two to three years they will be in a similar situation if nothing changes. So the seriousness is quite substantive.

Mr. Gordon Earle: I have a question I'd like to put.

You mentioned the Jones Act and the importance of that for the United States. You indicated that you haven't really thought about or advocated that Canada create its own Jones Act, and we know there would be problems if Canada tried under the free trade act and NAFTA to object to this. Do you see any merit in Canada coming forth with an act such as the Jones Act to facilitate our industry here, rather than trying to challenge the Americans' right to their Jones Act?

Mr. Les Holloway: I would say that our version of a Jones Act should be all-encompassing of the needs of the whole of the industry. Every time we get asked a question, for instance, the question in our meetings with Minister Manley, one of the issues that comes up is, if we had a domestic financing program, would that be better? Yes, that would be better, but that's not the whole of the issue. The issue is much broader than that.

The issue is, how do we look at our industry, the shipbuilding industry in Canada, and then looking at it and saying, yes, we want to maintain a shipbuilding industry in Canada, what can we do on a broad industrial strategy basis that would allow that industry to survive and prosper and continue to exist? That's how we approach it.

So whatever we would call it, we would hope it would end up being some form of act, some form of legislation that would bring in and deal with a number of issues that are important to the industry.

Mr. Gordon Earle: Good.

I have one final question.

It has been suggested, and I think I've even suggested this myself at times, that it might be appropriate when the Department of National Defence, for example, is looking at procuring equipment, rather than allowing our supply to run out and then all of a sudden having one big order where everything needs to be supplied at once—take, for example, helicopters, the ships, the frigates, and so forth—it might be advisable to stretch the procurement over a period of time by perhaps producing two ships every so often, and as the others drop off, produce two more. Do you think that's a viable way of maintaining some continuity for the shipbuilding industry?

• 1000

Mr. Les Holloway: I think it makes more sense than these huge swings upward and then these huge drops down. It makes more sense to take a more managed approach in how we deal with sustaining an industry such as shipbuilding and how we in fact build vessels.

My understanding presently is that we are looking at possibly mothballing a half a dozen or so of the coastal defence vessels that we built. That would say to me that there should have been some thinking into that as to how we went about building those, and we should have built them at a time that possibly we could man them or put personnel on them.

So yes, I think a strategy like that could be part of what this committee could look at so that we could have more sustained work, not huge highs but a more level kind of situation with regard to what needs to exist with regard to our defence and sovereignty as a nation, and yes, it comes to spending.

Mr. Gordon Earle: Thank you.

The Vice-Chair (Mr. David Pratt): Mrs. Wayne.

Mrs. Elsie Wayne (Saint John, PC): Thank you very much, Mr. Chairman.

First of all, I want to welcome you all here. I also want to compliment Les on his presentation, and I welcome Gary and Terry, who are from my area.

I just want to say that the boys in our shipyard in Saint John, New Brunswick, have always been very supportive of me and others as well. They go and they do, and I don't ask them how they vote, because that's not up to me. I know they're there, God bless them, and they do a wonderful job.

Mr. Chairman, I want to say this. When we had 4,000 of those men working at our shipyard—

Mr. Hec Clouthier (Renfrew—Nipissing—Pembroke, Lib.): What are you pointing at me for? It's them who said it.

Mrs. Elsie Wayne: That's all right. They'll never get another vote in Saint John, so don't worry about it. They finished that one for sure.

But anyway, Hector, when we had 4,000 of those men working, you should have seen the economy, the way it was booming and how good it was for the whole region. It was absolutely wonderful.

Today, what do we have? We're down to about 100-and-some men in the shipyard now—is that what it is, Terry?

Mr. Terrence O'Toole (President, Local 3 Marine Workers' Federation, CAW): It's 275 workers.

Mrs. Elsie Wayne: It's 275 workers, down from 4,000.

I want to tell you something. They came up from Louisiana and interviewed about 200 of our men, and do you know what they said? They're the best shipbuilders they've ever interviewed, and they offered them all jobs.

A young girl from high school came to my office and asked if she could see me. I said yes, and she said, “Mrs. Wayne, can you not do something where daddy will come back and work in the shipyard here? My daddy is away.” She said “Please, can't you do something, Mrs. Wayne? My mom told me to ask you, and I'm coming here today to ask you.”

I'm asking my colleagues around this table for all of us to get united and fight like blazes for a shipbuilding policy so that little girl's daddy can come home. I'm telling you, they don't want to go down to the United States to live; they want to do it here.

We also have a representative from B.C. here, as well as the shipbuilding. We welcome you as well, sir.

But I'll tell you something. As far as our committee goes, when we are buying used submarines, and after we buy them we can't even use them because they have to be repaired, it's time for us to really go after the government and say, look, we want to build our own submarines, Rob.

A voice: [Inaudible—Editor]

Mrs. Elsie Wayne: Yes, we are, and I'm going to put you on one of those submarines, dear, if it's not floating. But anyway....

The Vice-Chair (Mr. David Pratt): Mrs. Wayne, we do have some witnesses here, and I'm sure they'd love to receive some questions.

Mrs. Elsie Wayne: It is an important issue that we must deal with.

Les, how many workers were there back in 1993 in the shipbuilding industry across the country?

Mr. Les Holloway: To give you a rough number, we were probably at about 12,000 shipyard workers right across the country.

To give you a finer picture, we have about 275 working in Saint John, as just mentioned, and we have about the same number working in the Halifax shipyards. That's 275 workers out of some 3,500 to 4,000 in Saint John. In Halifax, we had about 1,200 workers and now we're down to about 275.

In Newfoundland, there are fewer than 100 working, out of a workforce of about 1,000. Pictou is almost completely closed. You could go to Davie in Quebec and see what's happening there; there's next to nobody working. In B.C., there will be similar problems unless something is done. So it's quite a substantive drop.

Mrs. Elsie Wayne: But there's the spinoff effect of that into other industries. When you're building ships, do you know the number of employees that are there in the high-tech world? This is high-tech now. Our minister, the Minister of Industry, has to understand that this is high-tech. He said to me one day in the House when I asked a question, we're into the high-tech world. Well, shipbuilding is high-tech.

• 1005

Do you know the spinoff effect for other employees?

Mr. Les Holloway: It's still a very labour-intensive industry. For every shipyard worker, two and a half to three jobs are created outside of that shipyard in supply and service sector jobs.

Mrs. Elsie Wayne: Okay.

Now, when it comes to the Jones Act, I did have an opportunity to meet with the Canadian ambassador down in Washington, D.C. I want to tell you that I was very impressed with the gentleman.

The Vice-Chair (Mr. David Pratt): That's Mr. Chrétien.

Mrs. Elsie Wayne: I was very impressed with him. I really was.

But when it came to the Jones Act, which they did bring up, Mr. Chairman, he said “We haven't addressed that, Elsie.” I think the only time we're going to get the ambassador to do that is when we go down as the defence committee. I mentioned to the chairperson that we should be going down to meet with and talk to him.

Mr. Robert Bertrand: We can't travel.

Mrs. Elsie Wayne: Well, I'll pay my own way to go down to talk to him.

I think he has to be asked to take a look at that. But we have to ask him to do it, and, as you know, the minister has to ask him as well.

There were other issues he was dealing with, and he was right on top of them. He was taking a stand for us, and I'm sure that he would take a stand for us on this one as well.

Thank you, Mr. Chairman.

The Vice-Chair (Mr. David Pratt): Thank you, Mrs. Wayne.

Mr. Hanger, you have five minutes.

Mr. Art Hanger: Thank you very much, Mr. Chairman.

I just wanted to respond a little bit to my colleagues, but also to the witnesses. Is this a partisan issue? Well, when you look at government policy pure and simple—and you mentioned it, Mr. Holloway—1993 was the turning point for the shipbuilding industry. So one would have to ask, what happened in 1993, and why is there such a diminished number of workers on the docks in comparison? So is it a partisan issue? It certainly has a reflection on government policy. I don't care which way you cut it, that's the bottom line.

You're talking to the defence committee here, so we'll look at defence policy. What is defence policy? How much spending has been allocated to defence spending? Defence spending has been chopped by 23% since 1993, 25% in real dollars. How does that affect the shipbuilding industry on the defence side? It affects it in a very substantial way. Yes, we need supply ships, we need to replace the destroyers, and we need some coastal defence vessels. Where are they going to come from with a budget that has been slashed to 1%?

There are parties that advocate no war-fighting equipment and who would like to see the termination of it. Our party has never stood for that, nor generally has the Conservative Party ever stood for that.

But you have a defence budget of 1% of the GDP, which is the lowest in all of the NATO alliance. Are you going to get a shipbuilding industry developed on that alone? I hardly think so. I'm just being realistic with you, gentlemen, and I think that story should be adequately told even by the government side.

I think your appeal is legitimate. What happened to the shipbuilding industry defence side? I can tell you what happened to it, and it's very simple.

Mr. Les Holloway: It's no secret that a lot of government work dried up in the 1990s because of a lot of cuts. There's no question about that.

But having said that, the issue we're facing here is not a one-piece issue. You keep referring to if we do something with defence, we in fact—

Mr. Art Hanger: You're talking to the defence committee, though.

Mr. Les Holloway: I know I'm talking to the defence committee. But you forget completely that when I spoke earlier, I said that our position, which I think is the correct position, is that you can't have a defence in this country if you don't have an infrastructure that supports a defence. Shipbuilding is part of the infrastructure.

Mr. Art Hanger: That's fair enough.

Mr. Les Holloway: So that's what we're saying.

I'm not sitting before this committee, and neither are my colleagues, and saying that this is a one-fix solution and there's one issue here, that we just increase spending in defence, and we're going to have a shipbuilding industry in the country. We're saying that it's a much bigger issue than that, that our industry has to be able to compete in the global market for commercial vessel construction of all types so that we can indeed maintain the industry. Then when you need the industry for reasons of defence or sovereignty of the nation, you would in fact have it.

• 1010

I did want to touch on the whole issue of subsidies and our initiative as a government. If you remember, the Canadian premiers came out again saying there should be something done on the issue of subsidies, and that in the absence of that there should be a meeting, and a shipbuilding policy should be put in place in the country. That's what the Canadian premiers said.

For those members of this committee who may not be aware of this, when we were at the WTO talks and getting ready to raise the issue of shipbuilding, which to my knowledge never got raised at all, at the same time you're sitting there, you're sitting with your colleagues from France, the U.K., and Germany, all of which were increasing their subsidies as they sat there. They were increasing their subsidies in their countries to maintain the shipbuilding industry there. So you weren't going to get a long way with that. You're going to tell the Americans that we'll get rid of the old Jones Act, that subsidy. Of course, they're increasing their subsidies at the same time we're talking about wanting to get rid of all subsidies.

So it's not an issue. It's a noble gesture. We think working on the world front and dealing with that issue and getting rid of these very unfair subsidies, which really make it difficult for countries to compete, and creating some fairness in the market for shipbuilding needs and what have you is a noble gesture, and it's one that should continue. But it can't continue in the absence of us putting a policy in place that maintains our industry while nobody else is living by the rules. We're the only maritime nation in the world that's into shipbuilding that does not have a shipbuilding policy—the only one.

So how do we reach the conclusion that what we're going to do is get rid of all the subsidies in the world? There ain't nobody listening. They're increasing them as you sit there and talk to them. That's what we do as a country.

So it's not a one-fix issue. It's a much broader issue.

The only issue Art, that you have to deal with is, do you believe it's necessary to have a shipbuilding infrastructure to maintain a defence in this nation?

Mr. Art Hanger: Yes.

Mr. Les Holloway: If your answer is yes, then support our call for a meeting of the stakeholders to talk about the issue, and let's start finding a solution for Canada. Let's start finding a way to maintain an industry that we agree is necessary for the defence of this nation. That's what we're saying.

The Vice-Chair (Mr. David Pratt): Thank you, Mr. Holloway.

Judi.

Mrs. Judi Longfield (Whitby—Ajax, Lib.): Thank you, Mr. Holloway. I certainly appreciate the approach you've taken.

In responding to Mr. Hanger, you answered my question when you said there's not a single fix.

I don't think there's a member of this committee that hasn't worked hard to increase government spending. I think we'd like to see supply ships. I don't think it's a partisan issue. This committee wants to see increased spending. I'll agree that not all members of our party share our concerns, but certainly on this committee we're united behind that.

I think it's probably fair to say that we're united behind convening a summit that will look at these issues. I think that's vital, and it needs more than the defence committee. I think you've touched on it.

It's at the heart of Industry Canada, which continues to claim that they do have a shipbuilding policy, and you've pointed out rightly that from your perspective we don't.

I think it should have been on the table at the WTO. It's sad in this way when you indicate that we're the only government that plays by the rules and that we're not subsidizing and doing all that, but we're the ones who are taking a real beating.

Given all of that, what would you bring to the table at a summit? What do you think the key corporate strategy from the Canadian government should be? You touched on the financing package and said that you need a longer amortization period and that it needs to apply to domestic vessels.

I agree that we should buy Canadian, but I think sometimes that works to our disadvantage. If we have a total protectionist situation, then how do we convince other countries to buy from us if at the same time we're saying we'll only buy Canadian vehicles? What rules do you think the government should put into place to address this situation?

Mr. Les Holloway: Those are a lot of questions. I'll try to answer with just a bit of a broader statement.

When we look at a summit, we look at (a) a recognition that there is a crisis in the industry, and (b) the convening of a summit would be a statement that we want to maintain a shipbuilding industry in this country.

• 1015

Those would be the two key points that I think would be front and centre in the convening of a summit. It's then a matter of sitting down and starting to look at what really are the problems within the industry and what the fixes are that we need, looking at what is done. It's having somebody explain to us how title XI financing in the United States works. Why is it such a great success? Why has that program had success in creating so much activity in American shipyards? It's looking at things like the Jones Act and asking how we can best approach the issue of dealing with the inequities in that. Can we say to the Americans, our friends to the south, that we should not only be looking at an exemption of vessels that come from the United States to Canada, an exemption from the 25% tariff that we have in place? Why can't we have a debate with the Americans to say that, in the true spirit of free trade, we should have an exemption from Canadian shipyards competing on American ships?

Entering into it, it doesn't mean there will be solutions found. The leasing provisions are a big issue. If nobody's purchasing vessels but they're doing it through leasing arrangements, then how do we create a policy that addresses the issues so that the writedown is favourable enough to build in Canada? How do we do that? Have a vetting of that so that at the end of the day there's nobody going in with the presumption and position that we in fact are going to have the answers at the end of the day. It's a start at looking at trying to find the answers and the problems we face in the industry and wanting to find solutions to them.

It goes right to the core, because the core issue here is whether or not we want a shipbuilding industry in Canada. If we want a shipbuilding industry in Canada, the Canadian government cannot sit by while everybody else is doing what they can to in fact increase their market share of what's going on in the industry globally.

I want to mention, too, the issue of support. The finance committee, to which we presented before, made recommendations to Finance Minister Martin that there has to be something done with the shipbuilding industry to increase its international competitiveness. That's the finance committee's report, so they came out in support of our issue that something needs to be done. There's also Catching Tomorrow's Wave, a document by Atlantic federal Liberal caucus members who came out in support of call for the need for a shipbuilding policy and a convening of the stakeholders to start to talk about the solutions. I just want to throw in that those are two areas of support that are, in our view, not as biased on necessarily a specific issue such as this.

We're sometimes looked at as though this is an issue that we want to proceed on because we have some specific interests in it. Of course, I have a specific interest in wanting our members to work—that's who I represent—but what are the interests of the Canadian Chamber of Commerce? They have an interest in a shipbuilding policy and a summit. What are the interests of the municipalities in this country? Why are the Canadian premiers saying they want a convening of stakeholders? Why does the Catching Tomorrow's Wave document mention it? If you haven't read it, I encourage you to get a copy of it. And why is the finance committee saying it?

So there's a lot of support on the issue. We just want to build on that and we want this committee to move forward with that too.

The Vice-Chair (Mr. David Pratt): Thank you, Mr. Holloway.

Mr. Laurin?

[Translation]

Mr. René Laurin: Mr. Holloway, I have a very specific question for you. In your opinion, would Canadian shipyards have been able to build submarines comparable to the ones Canada recently purchased from Great Britain? Do our shipyards have the infrastructures and technical capabilities that are required to build submarines like these to meet CanadaÂs needs?

[English]

Mr. Les Holloway: I can tell you that when there was discussion about whether or not nuclear submarines would be purchased—and the previous Conservative government had it on the table to go ahead with building submarines—the Saint John dry docks were enormously ahead on the infrastructure planning that would be required to build the vessels. Those vessels would have been built completely inside the track system for the launching of those vessels. They could build nuclear-powered or diesel, whichever the government wanted.

• 1020

Does the technology exist? Yes, and the technology existed that year. It was up and running and ready to go if the announcement was in fact made. The skill and technology that's in that yard would have meant it would have been a very successful project. So, yes, that's a yard in Atlantic Canada that was well ahead in getting ready to build those vessels, and it would have been able to do that.

[Translation]

Mr. René Laurin: Given the economic benefits in terms of research and development of that type of technology, of the creation of direct and indirect jobs linked to that type of a contract, do you believe that it would have cost Canada much more to build its own submarines rather than buying them from someone else?

[English]

Mr. Les Holloway: I don't have the figure on that, but we think it makes all kinds of sense to employ Canadians. If you're employing people and you have economies that are vibrant, you have a much healthier society. The input into the local economy from building those submarines...Elsie Wayne spoke about the input into the local economy when the frigates were being built. When the frigates were finished, you could literally drive through the town and see shops closing as you drove. Ask any small business owner what the frigate program meant to the city of Saint John. Ask what it meant to the city of Fredericton. I met with the mayor there and asked what it meant to him. It meant something to him. You could go right through the country and find communities that benefited from the building of those frigates.

Shipbuilding doesn't just fall within the boundary of the fenced-in area where you're building the vessel. It's very broad and will reach right across the country. There's a lot of very sound economic impact and very positive impact when you're building a vessel such as frigates, and that would have been the case in building the submarines.

I would argue that if somebody did the math, we would be further ahead if we had built than we are because we purchased them. We'd be further ahead because of the economic activity it would have created, the disposable income that would have been put into the local economy, and the tax dollars that would have been paid on revenue that was earned by workers. It would have been a win-win for us to build the vessels, but instead we went to off-the-shelf.

[Translation]

Mr. René Laurin: Mr. Holloway, did you lobby the government when the contracts were awarded? Did you make demands or talk up your skills in order to keep the contract in Canada rather than awarding it to another country? If so, what were you told?

[English]

Mr. Les Holloway: I'd have to go through correspondence, but we've been talking. Our federation was fully in support of the building of the vessels in Canada, in Canadian shipyards, not in the purchase. It's no different from our position on the ferry that they're talking about to be purchased abroad.

It's our position that there's only one way you can maintain this industry. When we have the opportunity and we need to replenish our capacity in any type of vessel for Canadian use, we have to make sure it's directed to Canadian shipyards and that we build what we need in this country. That's key if we want to.... You'd never do this in the United States. They wouldn't allow it. They build their vessels there. They understand the need to maintain their infrastructure, so they focus on that. We don't focus on that, and that's part of what I think has to be part of the work of this committee. It's to insist that we don't buy off the shelf, but that we do in fact build what we can in Canadian shipyards, which will assist us in the issue of maintaining the industry.

The Vice-Chair (Mr. David Pratt): Thank you, Mr. Holloway.

Mr. Clouthier.

Mr. Hec Clouthier: Thank you very much, Mr. Chair.

Les, I have a few observations. First of all, I firmly agree with you, and I believe my colleagues do, too. There should be a meeting of the minds, so to speak, with regard to shipbuilding policy, since Canada does not have one at the current time. The other observation is that on December 7—I believe that's when it was—Robert Chernecki, an adviser or assistant to Buzz Hargrove of the CAW, clearly said in front of the industry committee that the CAW was not promoting subsidies. But on page 11 of your book, which has the CAW logo on the front of it, you say the shipbuilding industry has to be supported through subsidies. Just as an observation, one shouldn't be saying exactly the opposite to what the other one is saying. If you want to promote yourselves—because you seem to be doing a very good job of it—you should be singing from the same book.

• 1025

Talking about that, you should be in politics, because you actually turned a question from Art Hanger around and asked him a question. I'm sure Gib Parent, the Speaker of the House, would be proud of you.

Talking about Mr. Hanger, I don't want to get into a quid pro quo with him, but if you check out their book, which is called No Start...that's a Freudian slip; their book is called Fresh Start. Mr. Hanger said the Reform Party's policy definitely was to cut over $1 billion from defence spending.

Let's talk about the Jones Act, because I believe that's where the problem lies. I agree with Elsie and my colleagues that it just seems to me to be very unfair that the Americans could have the market cornered with regard to the Jones Act.

I guess one question to you would be whether you know the difference between a frigate, a supply ship, or a cargo ship that would be built in the United States as opposed to one that's built in the shipyards up in Canada. Coming from the field of business, I would think that because the market is cornered for those American shipbuilders in the United States of America, their costs would be higher. If I was the American government, I wouldn't give them any subsidy. I'd tell them I've given them the best subsidy going because no one else can compete with them. Do you know what the difference in the price is?

Mr. Les Holloway: No, I don't know what the difference in the price is. I know there's a lobby that is fairly strongly in support of maintaining the Jones Act, but there's also a fairly strong lobby opposed to the Jones Act within the United States because shipping companies, shippers, and shipowners claim it increases their costs substantially. However, I think the more important point is that they continue to do the math. They recognize that there is a lot of benefit to a shipbuilding industry, and they want to maintain the Jones Act because it ensures that their shipbuilding industry survives. That's just an approach they took. That's why we don't sit here and say we should take the approach that we want a Jones Act.

I didn't have time to read it to find where that word “subsidy” is, where it crept in there, but I can assure you that our position is not in support of subsidies. We don't want to get into a subsidy war in which we have a subsidy for 6%, and then the Europeans go to 7%, we go to 8%, they go to 9%, and the Asians are at 10%, so we go to 11%. We know that's not the way we should deal with the issue. We want to deal with it as an issue of policy.

For instance, we have a financing initiative through the EDC, but it's completely inadequate in the real world of shipbuilding when you look at a financing package that gives you 87.5% for 25 years. That obviously isn't in violation of anything, because we have it and we're working along with it. Most are pretty happy that we leave it like that. The Americans are. They don't want to see us having an equivalent to title XI. They know that would allow us to be more competitive in ships for our own domestic market. As I said earlier, they're building ships in the United States for our domestic market and are exporting them here, but they want to keep their own market very locked up and tight.

We think we can find innovative ways and the convening of a summit as a way for us to start to talk about that.

The other thing is that, just for the record on our document, no matter what our document says, our document is what we are tabling to say we could in fact have a start of a debate on the issues, on the problems we face, and on the solutions. It would be the blueprint, from our view, but it's not necessarily what the final, fine text of a policy would look like at the end of the day. It's where we come from. So now where is everybody else coming from? When we get in the middle, what does it look like at the end of the day? We think we can put our heads together to find some innovative ways to ensure our industry continues to exist if there's the political will.

Mr. Hec Clouthier: Mr. Chair, I have one more short one.

The Vice-Chair (Mr. David Pratt): There's time for a very short question and a very short answer.

Mr. Hec Clouthier: As far as the Canadian shipbuilders are concerned, as opposed to the Americans, I believe the solution would be the evisceration of the Jones Act. Mr. Rantz, who is sitting over there and comes from the same area as I do, knows that I'm a farmer and a lumberjack. We have successfully contended against the NAFTA agreement through the WTO and the CITT with regard to dairy farmers and lumbering. I believe we should do the same thing under the Jones Act. Do you agree with me on that?

Mr. Les Holloway: Well, I agree with anything that puts the pressure on the Americans. That's negotiating. I think they'll maybe then look more seriously at some of the inequities that are created.

• 1030

There are two ways to deal with something like the Jones Act. Either we have one and they have one, and then you can say, that's fair, or you take the inequities out of the act so that it doesn't apply to us, and then that's fair for us too.

So I don't really care if they have a Jones Act when it comes to Asian shipbuilders or European shipbuilders. I just think in the spirit of free trade, where we have entered into an agreement with them, we should have those inequities dealt with so that we in fact are in a trade agreement that is fair for us—

The Vice-Chair (Mr. David Pratt): Thank you, Mr. Holloway. It seems as though your definition of “short” is the same as Mr. Clouthier's.

Mr. Earle.

Mr. Gordon Earle: Thank you, Mr. Chair.

I just want to follow up quickly on Mr. Clouthier's point, because I think he may have misread what was mentioned about subsidies in the presentation. As I read it, it says:

Canada cannot afford to sit on the sidelines, as other governments nurture their respective shipbuilding industries through subsidies, domestic content rules, strategic investments...

and so forth. But it doesn't say that the industry is asking for subsidies.

It then goes on to say it must have a proactive plan to deal with the whole issue. So I think there's probably just some misreading there.

Mr. Hec Clouthier: [Inaudible—Editor]...glasses.

Mr. Gordon Earle: Yes, I can loan you mine.

You mentioned in your representation that some of the things that are currently taking place through the government should be continued, and you talked about the continuation of additional capital cost allowances. Can you tell me a bit about how that currently helps the situation or why there's a need to expand upon that?

Mr. Les Holloway: Could you go through that question again?

Mr. Gordon Earle: In your presentation you talk about the continuation of additional capital cost allowances—the allowances that are provided under the Income Tax Act for shipowners to construct ships in Canada and so forth. Is that having any meaningful impact currently on the shipbuilding industry?

Mr. Les Holloway: Are you talking about the tax break area?

Mr. Gordon Earle: Yes.

Mr. Les Holloway: Well, in the province of Quebec they passed a program that they claim resulted in the securing of the Spirit of Columbus.

Again it's an issue of...we table the issues, and we sit down then and say, what is reasonable to assume? What is a sustainable policy that we could put in place? So of course we think that is a vehicle that would allow us to be more competitive internationally.

It's already in place in Quebec. Their woe is obviously with the problem of finding a new buyer, which hopefully will be dealt with fairly soon. But that program should allow them to be more competitive in that province, to secure work for their shipyards.

But again, with us it's an issue that we tabled, to have the discussion to ask if there is something we can do in that area that's innovative, that could create a policy that would allow us to be competitive.

Mr. Gordon Earle: Thank you.

The Vice-Chair (Mr. David Pratt): Is there anything further, Mr. Earle?

Mr. Gordon Earle: No, that's fine, thanks.

The Vice-Chair (Mr. David Pratt): All right, we'll go to the Liberal side, Mr. Bertrand.

[Translation]

Mr. Robert Bertrand: I have a comment and a question.

I would first like to add something regarding the issue raised by Mr. Laurin a few moments ago regarding the construction of submarines.

As you all know, Australia built its own ships and submarines. Unless I'm mistaken, when Australian Defence officials appeared before the committee, they told us that it cost them about $6 billion to build six vessels. The four British Upholder submarines Canada bought cost $750 million. I think the government got a good deal. I think it would have cost a lot more had Canada decided to build the submarines itself.

That said, Mr. Chairman, I would like to ask Mr. Marr a question, since we have not heard from him yet. How much work done in Canadian shipyards comes from domestic contracts as opposed to foreign ones?

• 1035

[English]

Mr. Gary Marr (President, Marine Workers' Federation, CAW): Well, in Saint John we had the frigate program. We dealt with—

The Vice-Chair (Mr. David Pratt): Could I ask you to direct the microphone? Thank you.

Mr. Gary Marr: In our yard in Saint John, the owner is building ships now. That's the only work we have.

In our yard we had the frigate program, and on the international market, I don't think we've competed at all.

[Translation]

Mr. Robert Bertrand: Does the West, British Columbia, get a lot of international contracts?

[English]

Mr. Les Holloway: I'd like to respond to that. We're not building anything in the international market, to put it very bluntly. There are a couple of vessels being built, and I would say the Irving company that owns the Saint John dry dock is building vessels at a huge cost to try to maintain that yard and put some work into it. But if you go right across the country, you'll see there's no work being done internationally. So the percentage is easy—it's zero.

As far as the west coast goes, to give you an example, on the west coast there are a lot of barges used, and I forget the name of the company, but they just put an order in to build 12 barges in China—barges. That's what we're talking about, barges. So, of course, they pay the 25% duty—huge subsidized shipyards in China; great human rights advocators in China—and they're building 12 barges to work the waters off British Columbia. That's how sad the situation is, in some respects, when we can't build a barge.

Mr. Robert Bertrand: Mr. Holloway, I have one last question on leasing. How does that work? You say everybody now is going toward leasing ships. As I said, I don't know too much about shipbuilding, but who pays to get the ships built and then leases them out after?

Mr. Les Holloway: If somebody wants to build a vessel tomorrow, for lack of a better word, if Canada Steamship Lines wants a new vessel to work in their fleet, they in fact for the most part now, will not purchase outright, but will build on a leasing basis. But the leasing arrangements are done so that that company leases the vessel instead of building it, and leases it over a period of time. And it's not uncommon that this can be 20 or 25 years.

Once it's leased, it's the issue of write down. In shipbuilding in Canada you don't get the favourable writedown on leasing; you get it on purchasing. But nobody is purchasing vessels now; they're leasing them.

In rail, for instance, the opposite is true. You can buy a train with 500 cars attached to it. Every car could fall into the leasing provisions because of the cost of building the car, even though you're going to attach them all together and run the train. And it may be that the total cost of the whole train is equivalent to what it would cost to build a vessel. They get the leasing writedown provisions. We don't in shipbuilding.

Part of what we're saying is that the issue that faces shipbuilding is unique because the global marketplace we work in is unique with all the other initiatives that all the other shipbuilding nations put in place.

What we have to do in Canada is find a solution that is specific to the shipbuilding industry, because at times we hear Minister Manley make comments that if we do it for shipbuilding, we have to do it for everybody else. Well, in shipbuilding we have to work within the realities of what that industry faces in the global market, and what we face is different from what other industries face. So our fix has to be tailored to the needs of the industry, and that's part of the approach we think has to be taken by the federal government.

The Vice-Chair (Mr. David Pratt): Thank you, Mr. Holloway.

Mrs. Wayne.

Mrs. Elsie Wayne: With regard to the Revenue Canada leasing regulations, I would just say this, Robert. Rail cars, autos, vans, trucks, and trailers are all free from the leasing rules that are there—all modes of transportation except ours, shipbuilding. If you're going on the water, you're building a ship, Revenue Canada has leasing regulations.

• 1040

What we're saying, what they're saying, is that there should be an exclusion with regard to our shipyards as well. There are for the auto workers. There are for the vans, trucks, trailers, and rail cars, but not for the shipyards. I think that's one we can really push, Mr. Chairman.

I think the major concern I have.... I'm pleased that MIL Davie is still in Quebec and still working and so on. But when the United States comes in to purchase a part of the MIL Davie shipyard, then I'm really worried, Mr. Chairman, for all of our shipyards in Canada. Because that's what the United States would like to have—control of all of our shipyards. So we have a job to do.

I would like to ask you one question. You have in your presentation to us today the different recommendations, and in the first recommendation with regard to the title XI program in the United States, you say there has been a loan guarantee program recently introduced in the province of Nova Scotia. Does that cover shipyards as well?

Mr. Les Holloway: It was only a one-time initiative. It was done by the Liberal government, who are no longer in power. It was a one-time initiative to try to secure the building of two supply vessels in the Halifax shipyard. It was successful in doing that. It was a move in the direction of being equivalent to what was being offered in the United States, but it wasn't of the same level.

Mrs. Elsie Wayne: Right. But it was only for just that one contract, was it?

Mr. Les Holloway: Yes.

Mrs. Elsie Wayne: So of all of these recommendations you have here, which ones are the most important? You never get everything. You know that and I know that. So the one with regard to the title XI program is an important issue, and also the one with the Revenue Canada leasing regulations and the one with the refundable tax credit. Where are the others, Les? Are those the three most important ones?

Mr. Les Holloway: Again, the approach we take is that there are some we would tout as being more important than others, possibly, but the whole issue of dealing with the problems that face our industry is that we as a nation—and this can go for any industry, but for our industry and for the purposes of this presentation—should be looking at industries based on the global marketplace that we are now completely entrenched and competing in, and finding solutions in a broad sense to all the issues that face us.

We raise these issues. The three you mentioned are key issues to any policy platform, without question. But it's an issue of saying how do we as a nation make sure we are in the same playing field. How do we as a nation make sure our industry in this country is not put at a disadvantage? It's up to the federal government to play that leadership role in trying to find a solution.

The stakeholders are ready to sit, to start to talk and try to find solutions to the problems, taking in all the issues that are important. So it's wanting to look at it in that sense, rather than just prioritizing and saying this one is the most important, then that one is the most important, and giving some kind of list to us. The industry is important. So whatever we can do to create the type of strategy that will support the whole of the industry is where we should be going as a nation, and it should be a living document. It should be something that we continue to revisit if necessary, to continue to be efficient, because it's something that may change in the future.

Mrs. Elsie Wayne: I assume you've made presentations before the finance and industry committees, because they have come out in favour of a shipbuilding policy. What I want to know is, at that time did you ask them to support a summit on this issue—both industry and finance—and did they both agree?

Mr. Les Holloway: Yes. We haven't got the report on industry yet, so we don't know if that's out. I don't think it's been released yet.

The issue of the recommendation—and we were a recommendation in the finance committee report—was that the federal government must find ways to ensure that shipbuilding in this country is internationally competitive. It was around those words, but not exactly. The only way that can be done, obviously, is to start to have some dialogue and talk to each other to find solutions.

Mrs. Elsie Wayne: Thank you very much.

Thank you, Mr. Chairman.

The Vice-Chair (Mr. David Pratt): Mr. Hart.

Mr. Jim Hart (Okanagan—Coquihalla, Ref.): Thank you very much, Mr. Chairman, and thank you, gentlemen, for coming today. I found your presentation most interesting.

I come from a little bit different perspective, I suppose, because I'm probably one of the only people sitting around this table who has actually sailed on a ship. As a part of my career, I sailed on three Canadian destroyer escorts, the Gatineau, the Yukon, and the Qu'Appelle, and I'm very proud to say I've done that.

• 1045

Unfortunately, during the period of time I was in the navy, we had a serious deficit in equipment. Our equipment was rusting out. As we participated in exercises around the world, we could see Canada was being left behind. We are a maritime nation. As a young person, I was very sad about that at that particular time, in the mid-1970s.

I look at Canada as a maritime nation, and we should have a shipbuilding industry. Canada should be able to compete in the shipbuilding industry around the world. One of the concerns I have is, whether it's the frigate program or the catamarans in British Columbia, the public always hears of major cost overruns. So first of all, I'd like to know what the industry is doing to address that situation. What recommendations do you have with respect to these cost overruns? How can the industry help there?

The other issue I want to address is this term “off-the-shelf”. Well, as far as I know, there isn't a used, off-the-shelf supply ship lot anywhere sitting around. So I want to know what the industry and the workers feel about the terminology “off-the-shelf” and what that means to your industry.

I would also like to say I'm glad you've talked to the finance committee, because one of the most important things this country can do for any industry, whether it's shipbuilding or agriculture, is tell the government we need broad-based tax relief right across the country. That's going to inject a tremendous amount of cash into all of our industries right across the country and stimulate investment in this country again. I'd like to know what your industry is saying with respect to broad-based tax relief.

Finally, could you answer this question? I don't know the answer, but I know our finance minister does have a shipping company. Could you tell me where Paul Martin has his ships built?

Mr. Les Holloway: Well, the last three, and I think one still to deliver, are in China, and they are those self-unloaders. It's unfortunate they're not built here, but that's the reality.

I'd like to try to comment on a number of things you've raised.

In Canada we had for many years quite an approach to dealing with issues. We did everything for the wrong reasons. When I say for the wrong reasons, I mean when we do things for political reasons, it's not the right reason to do things. Most contracts awarded and decisions made by successive governments were done for reasons of some political mileage.

What we want is a strategy that sets that apart and takes that out of it, so that you're not giving jobs to a shipyard because of where they reside, but rather you're giving work to a shipyard because they've entered a tendering process, competed for the work, and were successful based on the knowledge, the quality of the tender, and the price they could provide to do the work.

That's underlying a lot of it. That's always been the issue in shipbuilding. There has never been a strategy per se to deal with our industry in any unique way, such as in aerospace and auto and those types of things.

On cost overruns, again, if you're building, and I used the B.C. ferries as a good example.... I gave the example of the frigate program, which was a hugely successful program. The last frigate they built was way under hours—less than half the hours it took to build the first one—very successful, and state-of-the-art. They're touted by anybody who gets on them as being state-of-the-art, quality vessels with quality workmanship. So that's a signal as to what we can do.

In Halifax shipyards they built seven oil rigs and a drill ship in the 1970s. Anybody who sailed those will tell you most are still operating today.

So what kind of quality work do they do? They do very high-quality work. But there is a cost in trying to carve out a niche. The market, again, will determine whether or not you survive or fall on any issue like that.

We don't have a lot of good play. If something sinks, you get media coverage; if it floats, you don't.

• 1050

As for the issue with the ferries in British Columbia, those FastCats are among the nicest vessels I've ever sailed in my life. I've been to Europe and been on their fast ferries, and I've travelled on ferries all around Canada, and I've been on nothing that sails as nicely as those B.C. FastCat ferries.

One must remember they were trying to carve out a niche. There's a huge learning curve when you're building a vessel the first time ever, building a complete vessel in aluminum. The whole vessel is done in aluminum, with very high-tech propulsion systems and what have you.

So of course there's going to be a cost overrun on that. The problem is the media likes to play up the huge cost overrun at times, rather than playing up the very high-quality vessel.

I was glad to see, after they gave it such a negative appraisal at first, that they focused on the technology side of it and how state-of-the-art the vessel was and the quality and the way the vessel ran. If anybody read that report, of course that was much smaller in the paper, but it got huge approvals by the experts, who say it's one of the nicest ferries. You can stand on that, and you think you're sitting in a Lincoln. It's that smooth a vessel.

I don't think we do enough. I can't speak for the media, but the media does very little to support. The frigate program is an example too. W5 did a report on the frigates, completely condemning them. At the same time, we were trying to market those in countries around the world, and we were close to possibly having them marketed around the world. Then this damning report comes out from W5. Did you know they issued a retreat on that, an apology, back some months ago? That's a lot of good. The ability to market them now ceases to exist; now they're out of the market because we got some bad media.

So as I say, the ship that sinks will get all the attention and the one that floats won't get it.

Mr. Jim Hart: And on broad-based tax relief, just quickly?

The Vice-Chair (Mr. David Pratt): We're going to have to wind up here. We have another committee coming in at 11 o'clock, and we should give them a few minutes to get set up.

But before we do that, Mr. Holloway, I would like to ask one very brief question. Could you tell the committee what the average hourly wage is for shipbuilders in Canada right now?

Mr. Les Holloway: The average hourly wage is probably between $18 and $20 an hour. Our wage cost is one of the lowest in the shipbuilding world. We're lower than the United States, we're lower than European yards, and we're lower than a number of the Asian yards. There are obviously other yards that are higher. So our cost is not an issue.

The Vice-Chair (Mr. David Pratt): I'd like to thank all of the committee members for their questions, and the witnesses for being here before us today. It's much appreciated. You've provided quite a bit of information for us.

The meeting is adjourned.