:
Thank you, Mr. Chairman.
I also have Fiona Cook with me, who is our senior adviser on business and economics. Because I heard all those great questions you asked Jay yesterday, I realized I was going to need some help here.
Thank you very much for this opportunity to talk to you about the chemical industry and, more broadly, the manufacturing industry.
[Translation]
This special subcommittee's discussions are very important for our industry and for all manufacturing sectors and I thank you for having them.
I hope to be able to make you aware of the chemical industry's situation and the unique position it is in because of this crisis.
[English]
My presentation will build a little bit on what Jay and the Conference Board were raising yesterday. Some of you were mentioning earlier that we all come and talk about our sectors and how important they are, but I'm actually not going to spend a lot of time on the chemical sector. Really, I'm going to talk more about the economy and perhaps the role of the chemical sector in the economy.
I'll begin with some background comments to set the stage. Then I'll have three main points regarding the need for political leaders of all parties to work together, much as you did with the Rajotte committee and the manufacturing report, to create the conditions for a strong and competitive manufacturing sector in Canada, of which the chemical industry would be an important part, of course, as well as the railway industry. Finally, I'll have one recommendation for the work of the committee.
I'm going to start my presentation in a little bit of a unique way. I'm going to ask a question.
In roughly five years, Canada has seen its manufacturing sectors go from 18.1% of GDP to 14%. We lost about 320,000 jobs between 2004 and 2008. I know you were wrestling with the auto industry recently, so you know what that really means in terms of people, lives, and communities. That's more than one in seven manufacturing jobs that disappeared in that period of four or five years. It's just absolutely amazing. One would have thought people would have been ringing the alarm bells long ago on this issue, but it seems we haven't until this recession came along.
In addition to the men and women who have lost their jobs, there has been a hit to communities across the country, especially in Ontario and Quebec. In the chemical sector, we have lost about twelve plants in the past five years, including two major plants in Montreal and several plants in Ontario.
So my question is this: what is an acceptable number for our manufacturing sector? Would letting this number slide to 12% be okay? How about 10%? What do we want to see in the Canadian economy of the future?
Or perhaps we could think about developing a robust manufacturing strategy that would either maintain or rebuild the core role of manufacturing in the economy.
I'm here today to try to convince you that Canada needs to go a bit beyond just looking at the sectors facing the issues that we've seen--the forestry sector, the auto sector, the aerospace sector--and beyond looking at those sectors on an urgent basis, to look more broadly at the interdependence among these sectors and some of the economic challenges we face as a country.
I have three main points I want to make today.
First, I'd like to just position the chemical sector in this and tell you why we're so interested in a broader economic strategy. I'll talk a little bit about our sector. Secondly, I'll try to illustrate that manufacturing should be an integral part of our economy if we want to maximize our standard of living and also employment for Canadians. Thirdly, and probably most importantly, government policy matters. Government policy is currently affecting the health of the manufacturing sector. Government policy can make it more competitive and improve our chances on the world stage in terms of the global economy.
My first point is that the chemical sector basically depends on a very robust Canadian economy, including a resources and services sector and including rail, as well as a dynamic and growing manufacturing sector. We're a $48-billion industry and the fourth-largest manufacturer in Canada.
Basically what we do—as Mike would realize, coming from Edmonton—is transform resources. We transform oil, gas, salt, and electricity into chemical products. Those products are then used by a wide variety of other industries, which can include pharmaceuticals, aerospace, auto, plastics, lubricants, and petroleum refining. Pretty well anything that is part of the Canadian economy somehow comes from some sort of chemical product base.
In doing that, we add five to twenty times the value to those base resources through this conversion process, thus directly creating wealth for the economy as well as the other sectors we depend on for the supply of those resources. But our industry can't prosper without resources and without people to sell our products to. Therefore, we are interdependent with the total economy and we have a very strong interest in the growth and health of the total economy.
As an example, in the pulp and paper industry, chemicals are one of our major input costs. Chemicals are used to break down the pulp. When the forestry industry is in trouble, we're in trouble. Several of my companies almost exclusively sell their product to the forestry industry, and they usually sell it in train cars. There's the other part of the interdependence.
Every car manufactured in Canada contains about $5,000 worth of chemical products: plastics, rubber, some of the lubricants, even electronic displays, and, increasingly, lithium batteries. So we're an area that's also dependent on all those other manufacturing sectors being competitive.
We're also dependent on services. We depend heavily on computer support. Imagine a chemical plant as heavily computerized for waste services and transportation services.
We prosper as the Canadian economy develops. As with most manufacturing sectors, 87% of our products are exported to the U.S., making us part of the overall North American economy as well.
Since 2006, our association, along with many others, has called attention to the decline in Canadian manufacturing. We've seen the current economic crisis exacerbate the loss of manufacturing jobs and investment. But this is by no means a new problem for us. The manufacturing sector has been facing this problem for five to seven years.
I don't know who said that you should never waste a good crisis, but in the midst of this crisis, there is an opportunity to use it to focus on the economy and what we need to do. My members are concerned about the recession and the huge decline in our production, but we know we'll get through it. We've been up and down before. Our main interest is what happens when we are through it and how we position ourselves for growth in the future.
My second point is that Canada is missing a major opportunity to build an economy that maximizes the value-added potential and resource base of our economy. We're a rich resource-based country. We have a growing service industry.
These two sectors are linked and are highly interdependent with manufacturing. Without the manufacturing sector, we'll be extracting resources and sending them out of the country to be upgraded by the Chinese, the Indians, or somebody else. They will increase the value of these products by five to twenty times and then sell them back to us. I would suggest that this is not a very good recipe for a strong and healthy economy. There's a lot of wealth potential in our economy to be had by thinking about how to maximize the upgrading of our resources.
I have been extremely disappointed that we don't see governments thinking about how to maximize the value of our resources, upgrade them, and make sure there's a strong manufacturing sector linked to the resources and services. Probably the only government that is focused on this is Alberta's. They have a strong view that they should upgrade their resources and diversify their economy. As a country, we should be maximizing the value of these resources for Canadians and we should be doing everything we can to achieve this objective.
This brings me to my third point, which is that government has a role to play in ensuring the growth of a robust, value-added manufacturing sector. Government policy does matter. I remember when Mr. Rajotte did his report on the manufacturing sector and made his 14 recommendations. That was an important step forward, because it pointed out a number of policies that could help the manufacturing sector.
There are many areas of government policy, both federal and provincial, that add costs for industry, make it more difficult to introduce products, and create unnecessary overlap and duplication between the federal and provincial governments where there are significant policy vacuums that lead to counterproductive policies. Energy is a good example.
Each year CCPA produces a competitiveness scorecard for various governments, including the federal government. I think you all have a copy. The scorecards analyze all the business factors that make Canada a competitive jurisdiction in which to invest.
The scorecards look at everything from fiscal monetary policy, inflation, corporate taxation, labour costs, trade policies and our legal system to energy supply, pricing, and transportation. We do this because, as a global industry, our companies are looking at different jurisdictions. They're comparing jurisdictions for that next big investment, the next big chemical plant that will then produce all kinds of opportunities for growth and spinoffs.
They don't look at just one factor; they look at all of these factors. If the energy costs are high, the electricity costs in Ontario are high, the rail service is not what we need, the tax structure is not as competitive, there is a mountain of regulations, and there's uncertainty on climate change policy or whatever, there will be decisions to locate in other places. So it's extremely important that we understand this competitive base.
I don't see governments thinking in these terms about the manufacturing sector. They think about problems or specific sectors, but we have to think about the total environment in which investment decisions are being made.
I note that Mr. Lake is a former Edmonton Oiler man, so I'll use a Stanley Cup analogy. This is a very globally competitive world and to win is like winning the Stanley Cup. Every team is good, and you can see that if you've been watching any games. They're all good--
:
Yes, well, they have injuries, though.
The game is rough and it's fast and to win you need to have a total package. You can't say, “I have one scorer and he's going to win the game”. You need to have the total package.
This scorecard in front of you today is our total package. Without reading the text, just by looking at the pluses and minuses, you can see that there are things where we're ahead and there are things where we're going down. We have to address the areas where we're weak and reinforce the areas where we're strong.
Industries like ours do not favour subsidies, handouts, or even special treatment, but we expect governments to do their part by creating the policy environment required for manufacturers to compete globally and by avoiding the introduction of measures that undermine or reduce competitiveness. We need policies that encourage investment in manufacturing and upgrading resources that stimulate progress toward sustainability objectives, which we believe is integral to that.
Although some progress has been made recently in corporate tax, and we think the harmonization of taxes in Ontario was a big step forward, the fact remains that there are major obstacles to investing in Canada compared to other jurisdictions.
These issues were well documented in the excellent all-party report by Mr. Rajotte, which made 14 recommendations. Some have been addressed, but I think it's fair to say that the response has been relatively tepid and there's still a lot of room for government policy improvement in relation to manufacturing.
To conclude, we are at a critical time. The creation of this subcommittee corresponds to the urgency that has been felt in many sectors of the economy. But as trying as these times are for manufacturing, there's a real opportunity to create some policy direction for the Canadian economy after this recession. There's an opportunity to rethink some of our assumptions about Canadian manufacturing and develop a road map for the future.
I don't know if that's your mandate, but who knows? These days, people can make their own mandates.
I would like to encourage you and your committee to build on the work of the Rajotte committee report, think beyond the problems of particular sectors and even this recession, and address the medium- and long-term requirements for a competitive manufacturing sector as part of a strong Canadian economy.
Thank you.
Esteemed members of the committee, let me preface my presentation, if I may, by echoing complete agreement with Mr. Paton's analysis, which is truly a “forest from the trees” perspective on manufacturing in Canada and what's needed. So I won't spend much time saying similar things here, because we in the Canadian Association of Railway Suppliers agree 100% with the comments made this morning.
First off, what I'd like to do for you is give a brief overview of the association and the membership and a little bit of a scope of the railway supply community in Canada, because I think it's not a story often told. Then I'd like to give a bit of an overview of the presentation, which I believe I submitted in time to Ms. Tittley and which you all have a copy of. I believe it has been translated, so I'd really like to focus on this, if everyone has a copy.
The Canadian Association of Railway Suppliers represents about 400 companies supplying the rail industry. This is without the tier 1 folks, so we don't include steel producers or petrol companies and whatnot. These are people who build and provide software to the railway operators so they can be, of course, the most environmentally friendly mode of transportation in North America.
In the last couple of years, we have had between 50,000 and 60,000 jobs in Canada directly related to the rail industry. Domestically, on average, we do about $4 billion in sales per year, and 80% of those folks in the rail supply community generate about $5 billion in export sales, for a total output of $9 billion, so we are quite important to the economy.
I'll start with the challenge. I'd like to go over the short-term challenge that we're facing here and then go into a solution and a proposed implementation plan for our specific sector. We've even priced it out, too.
On the short-term challenge, we have been hit incredibly hard, as have most manufacturing sectors. A lot of our large OEMs have had to furlough thousands of jobs just to stay competitive. A lot of these folks are now on a part-time basis.
You may ask why that's happening when we're investing in public transit like we've never done before. However, I'd like to preface that argument by saying that transit and freight should be treated separately but in the same sector. The public dollars are going into transit systems with transit authorities in provincial dollars through federal transfer payments, but on the other side of things, on the freight rail, we're seeing a lot of our folks in really very tough shape, some in bankruptcy protection and some out of work.
These aren't small widgets that they're building. At the end of the day, these are large locomotives with some of the most state-of-the-art technology. We're developing hybrid locomotives and environmentally friendly locomotives as well, using chemicals to produce track lubrication. I don't know if you've ever seen these. They deal with friction, where you get little squirts of this non-harmful substance and the beads move across the rails. It's amazing how much efficiency you can create off that chemical.
Just as you were mentioning about the interdependence of sectors, we have developed hybrid locomotives where we're using a lot of battery technology, and dynamic braking technology as well, to regenerate power and use it more efficiently. We're not laggards here. We're environmentally innovative in the realm of transportation technology.
However, the past year has had a very chilling effect. As I mentioned, a lot of companies have been hit very hard, very profoundly, such as National Steel Car in Hamilton, Electro-Motive Diesel in London, RailPower in Brossard, near Montreal, and Brandt, the largest private company in Saskatchewan. We've estimated that we've lost close to $1.2 billion in sales to date in a year over year comparison with 2008 levels. By the time this report was written initially, we knew that on the private side CN and CP had $400 million in reduced capital expenditure plans. Now we're seeing that number growing exponentially.
It's not that they're not investing; it's that they're delaying investment. The money is there to invest, but the problem is that when our shops aren't generating orders, we have to let people go. We're seeing this in a lot of areas. However, rail typically spends about 20% of revenue on infrastructure and rolling stock. This is good news for our sector. The problem, as I said before, is that it gets delayed, so what happens to our shop in the worst-case scenario is that we have to fold and go somewhere else. But we know those orders are coming back,so we have to hold fast. We have to make sure we survive the next two years, or three years, if that's the case.
If I may, I'll talk about the international picture. We've seen an increase in international growth. This is where it's really important, because a lot of governments have nationalized rail systems for freight and transit. That's where the money's being pumped in right now across the globe. Countries like Oman and Qatar, where they have never had rail before, are starting to invest.
Whether it's for a strategic need or part of an economic stimulus, or maybe a bit of both, it doesn't matter. There is business to be had over there. We talk about jurisprudence, but it's not dominated by protectionism. Whether we call it protectionism by this name or another name, we know that when it comes to procurement, there are some markets we can enter as Canadians and some markets we have no shot at. We can bid, but there's no way in town that we are going to be able to do that.
So we really have to go after this strategically. We saw 9% growth between 2006 and 2007 and we have about $116 billion worth worldwide. These figures are from a report that just came out on the future of rail supply. Internationally, we're looking at a 2% or 2.5% annual growth. We need to be a part of this. We can't let this sector slide away from us.
Not only are we trying to help our OEMs, but we know that 55% to 80% of their sub-component suppliers are Canadian. If they're building freight cars, using hopper cars for grain, or building national steel cars and tanker cars for some of the chemical products, not only are we helping OEMs, but we're helping these sub-supplier components and the other 400 companies that are adding to the industry. There is a trickle-down effect.
This is what we're up against. What is the proposed solution? Obviously, I don't think I need to go into figures on how environmentally friendly rail is as a mode of transport. We do 75% revenue tonne kilometres and we do between 3% and 3.5% GHG emissions. That's quite astounding. How were we able to get those numbers? The railway operators will tell this great story to death, and they're right to say this, but it's our technology that has enabled this. That technology has been developed in Canada. We want to see that trend continue.
With the proposed solution, we were hoping to get not only the domestic demand that we see is going to come around, and it will, but.... I'll throw this out. There are 300 locomotives parked right now. They've been taken out of service. There are over 20,000 freight cars out of service right now. If we're ever to upgrade, this is an ideal time to do it. They're out of service so we don't have to take a hit on capacity to make these more environmentally friendly.
A lot of these locomotives and switcher locomotives are in the yards closest to the communities, and oftentimes they're 30 to 40 years old. We have the technology to retrofit these things and make them up to 60% to 70% more efficient. This is the time to do it. By doing so, we would get our production facilities back in line, and we would be able to repatriate a lot of these lost jobs.
How would we do that? To get this program going, we have put together an idea for a railway manufacturing stimulus program. It's envisioned, if you will, as a one-time funding program between Canadian OEMs and the Government of Canada to help to offset the cost of rail equipment made in Canada with a recommended two-year lifespan. The program would increase production activity in Canadian OEM facilities, resulting, obviously, in job retention and creation.
Here's a spinoff effect. I talked to all of my guys and they said if we're able to get up to capacity.... Obviously, they have a lot of union responsibilities, so they'd bring back those folks who have been furloughed or who are part-time, but if they can go above and beyond that and grow--because we know that we have a growth industry here--we can transfer the lost jobs in the auto sector with very little retraining and get them working again in key areas in Quebec, Ontario, and Alberta.
We're saying that such a program would be implemented on a per unit, price preference basis. Procurement order applications would be placed with government authorities by Canadian OEMs with a partner North American railway operator. Such a fund could be managed through Industry Canada, with a framework similar to that of the structured financing facility, SFF, for Canadian built vessels and offshore marine structures program. I won't get into that structure itself, but it's an example of what's already happening.
There's also an example that we're using to cost something. We don't want to just talk about some challenges. You talked about challenges and solutions in the 21 recommendations that you proposed in order to deal with some of these issues and we're asking you to make sure that all of those recommendations are dealt with to benefit all manufacturing sectors.
In this case, I also want to make sure that we propose a solution. The Ontario government's Canadian steel preference policy puts together 10% price preferences with Canadian structural steel products identified in bids. We believe that if we did something similar it would take $120 million and we could get our production facilities up and running. We know it's not a small amount of change, but this would put us back into the game internationally and domestically.
Thank you very much for your time.
:
That is a good question, sir.
[English]
We have asked ourselves the same question. In the midst of what one would have to say was a serious problem, governments were asleep at the switch. What we would get here from governments would be, well yes, the manufacturing sector is losing jobs, but it's a global phenomenon and unemployment is only 6%. We're having surpluses in our budget, governments would say, and we really want to have a service economy anyway, and maybe we're not sure that manufacturing is really critical to the economy anyway. That's the kind of message we would hear from government officials, so you can see they were not that seized with it being a problem.
That's why the recession is kind of important, because now I think we're starting to realize that manufacturing jobs are kind of important, and you can't build your whole economy on the service sector. Take a look at what the U.K. did. The U.K. basically decided that manufacturing wasn't that important and they were going to invest in the banking sector. Now they have the highest rate of unemployment in Europe. It's not a very good strategy to build on just one sector.
But coming back to the second part of your question, it was about why that was happening. Global change, with China, India, and lower manufacturing locations, has meant that manufacturing industries have had to change, modernize, and become more high-tech and more environmentally sensitive, as I think Jay Myers explained so well yesterday.
You heard Jay explain some of that, but in particular during that period, we had two other problems. We had the dollar spike. When the dollar moved from 76¢ to—what was it?—$1.05 or $1.08 at one point, it had a huge impact on those manufacturers. The second problem was energy costs. When we, along with Jay's organization, did a survey of manufacturers, we were finding that energy costs were adding huge costs to our industries. That, plus the dollar, meant that manufacturers had to use all their money just to pay for the energy. Then, when they went to sell their product, they were losing 20% to 30% on the dollar. Essentially what was happening was that they were not making any money, and since they weren't making any money, they weren't investing in technology to increase their productivity.
That's the kind of problem we've had for five or six years. The recession has only made it worse. However, it has reduced energy costs and the dollar's down.
All those problems have been there and we did not see a response by government to those issues, although some of the tax rates did come down, which was helpful.
:
There are several areas.
We really don't have any energy policies in this country. We are woefully inadequate in regard to energy policy, so you have a lot of energy policy driven by environmental policy, which is not a bad thing except that it has consequences.
Just as an example, if you want to shift to natural gas as a vehicle for producing electricity because it has a lower environmental footprint, that is our feedstock. Natural gas is our feedstock. That shift means the price of natural gas would go up, because an electricity generating facility can consume one heck of a lot of natural gas. So it would be in short supply. Natural gas is the key feedstock for our plants in Alberta.
So we have to think more broadly about electricity policy and energy policy in terms of maximizing the potential for the economy. Nuclear is an example of that. Also, energy policy is an area where you have a lot of balkanization between provinces and the federal government, with federal government playing a small to non-existent role, which is a result of the NEP fiasco, I guess. That's one area.
Secondly, there are regulatory issues. Increasingly, there are major overlaps and duplication between federal and provincial governments. A good example of this is that the Ontario government right now is pursuing a toxic chemicals management program, which is fine—we have to manage these things—but they've designed the program to basically ignore the federal program.
This is going to put our plants and our companies in a situation whereby one province will have one set of rules for managing toxic chemicals and another will have another set of rules. At some point, this adds costs, significant costs. You don't know what the rules are, what the signals are, what the thresholds are, or whatever, so you have tremendous difficulties in regulatory areas.
The climate change area is another one. Right now, B.C. has a carbon tax, Quebec has a carbon tax, others are involved in the western climate initiative, the federal government's doing this, and Ontario thinks it should be ahead of everybody else. We have to harmonize with the U.S., and while I totally agree with Mr. Prentice's direction on that, the fact is that we have a pretty mixed bag right now.
On rail policy, we think improvements can be made. There is rail service review that needs to be done. Rail is critical to our industry. We think there is a need for better competition in rail and better service.
So you can go through a lot of areas, including infrastructure and border issues. I think a lot of progress has been made on the border issues, but the border is so big an issue. With just a little hiccup at the border, our economy suffers hugely. So a lot of work needs to be done on the border. I think the government has done some of that with infrastructure and the speedier movement of goods, but more needs to be done.
There are a lot of policy areas where, if we put all these things together with tax and trade, we could increase the efficiency of our economy quite substantially and improve the possibility of manufacturing being able to compete globally.
:
I'm going to give you an answer that may not be as simple as you would like. Generally, the business sectors, including the Canadian Council of Chief Executives, have argued that we need some way to price carbon. That doesn't necessarily mean the carbon tax.
Emissions trading, cap and trade, is a kind of way of pricing carbon. Certainly, Mr. Prentice has talked about how we have to align with the U.S., and the U.S. is moving down towards a kind of cap and trade regime. Although we thought Mr. Dion's scheme was a little complicated and not workable—that would be our view of it—we also think the same is true of most of the various proposals that are out there right now.
Permit me a little thought here. People talk about things like cap and trade as if it's like, “Okay, we'll just do cap and trade”. Just think about what it means to do cap and trade. What it means, basically, is that to cap something, you have to make a decision on a number. That means I have 200 plants in this country, and of those 200 plants, maybe 30 or 40 would come into a threshold that would require greenhouse gas mitigation. Somebody has to make a decision as to what the greenhouse gas number should be for those plants.
Who's going to make that decision? A government official? We ourselves can barely understand our plants. Every plant is different, with a different feed stock, a different technology, and different history. Even in Joffrey, which you probably would be familiar with, there were some built in the 1970s, some built in the 1990s, and some built in 2005. They're totally different plants.
The knowledge that you must have to make a decision on the cap is huge. The amount of government bureaucracy you need to make a decision on a cap is huge. Multiply that times the American economy.
So somebody has to make a decision. Then you have to get a differential between the number and the ideal number. Then you have to make that available either for punishing people or for rewarding people. Well, now we're talking about allocating money, serious money. This is going to make the mortgage meltdown look easy. There are going to be a lot of very difficult issues involved in setting caps that will affect industry dramatically.
The amount of intervention you would have in the economy would be huge, and I have a very simple principal policy: do no harm. I'd like to know just how we're going to design this and do no harm.
To conclude, I don't think the issue is carbon tax versus emissions cap and trade; I think the issue is design. That's essentially what the round table report said just recently. You have to design this to get a price on carbon to incent new technology. We agree with all of that. We are totally a sustainable development association, but you have to do it in a way that works. I personally have not seen any indication that anybody knows how to make this work. The European experience is a disaster on this. There's a lot of work that needs to be done.
:
I'm happy to give you my views.
We know that the railways are heavily capital intensive, with 20% of the revenues going back into the system, meaning the equipment, track, and rolling stock. A lot of it, to be honest with you, is going into positive train control right now. We're seeing legislation happening in California to deal with this in the U.S. by 2015. They're going to have to make sure that components are talking with each other electronically to make sure it's as safe as possible for people and dangerous goods.
We'll probably see something similar to that investment happening in Canada. However, the railways are always expanding. As soon as they were deregulated and were able to invest on their own, we saw a huge expansion in rail lines. We saw increased capacity.
Working with government, with all the gateways, has been a phenomenal success. I'm talking about Halifax, Montreal, Prince Rupert, Vancouver, and others. There's always going to be that large, heavy investment in infrastructure. We have to make sure that we're working closely with government for the level crossings and the rights-of-way. If we get faster and faster and more efficient at this, there are going to be some implications for more investments for dark territory or cold weather hazards to make sure that we can calculate as best we can.
We produce the software. We produce this technology to help the railways. The suppliers that do this get to tell their message about how good they are in this area, but at the end of the day we're working with them to produce this technology. We don't see a decline in that investment. If anything, we see that if we do rebound, we need to position ourselves to capture a lot of that market, because we're saving a lot of time from the port in Los Angeles. We know it's just a disaster down there, and we can offer a competitive advantage.
:
As Fiona was saying, the R and D tax credit is very useful to us. We have a number of companies that benefit from it. That probably is the reason they're able to do the amount of R and D they do in the country, notwithstanding the fact that R and D generally flows to the headquarters organizations.
The issue we have may be a bit of a different way of looking at this. In policy terms, what I see is that we tend to think that if you do the R and D here, then you will develop products here and you will produce them here. That's this linear model of thinking on R and D and that's not our experience in industry. If you don't have a viable manufacturer here, that manufacturer will not demand R and D to improve its product or adapt or change its product. They will have no position within the headquarters company to generate R and D.
Also, a lot of the R and D in our case is “D”: developing and modifying the product, making it more flexible, changing its nature. If you think of a pulp plant, it might be a certain type of paper or a certain type of water quality. You modify your product or your process to deal with that specific aspect. You invent a new way of dealing with it.
It's not a simple question of moving it from R and D to commercialization. In our view, you also need to have a very strong manufacturing sector with a very strong value-added type of dynamic. That will also help attract R and D, because that will be specific to our country. If we do carbon capture and storage in your province, Alberta, we will probably be the world leaders. Guess what we'll be doing then? We'll be doing what Jay's doing and selling that externally.
So when R and D are related, or the “D” is related, to the unique characteristics of our industry or our country, we have a much better chance to do the research and development and then commercialize it, because it is part of the fabric of who we are. You see that in some cases in the agricultural business. In certain areas of agriculture, we're leaders in the world because we have certain climates and certain types of grains and so on that enable us to be leaders.
I think it's a more complex issue than doing a whole bunch of R and D and assuming industry will come. I've seen this in Britain. I've visited places in Oxford where they're doing a huge amount of R and D. Notwithstanding the fact they did it and notwithstanding the fact they patented the materials, the reality is that because they didn't have the environment to support manufacturing, the Japanese or the Chinese came in, bought the stuff, moved it all offshore, and produced it somewhere else.
Having the R and D doesn't necessarily generate growth. You need to have the other conditions to benefit from it.
:
Thank you for that question.
That's exactly where we want to position ourselves coming out of this, in a positive, sustainable way, whereby Canada can be very proud of its manufacturing sectors and specifically where we try to position ourselves, when domestic and international sales.... The domestic market has been hit very hard on the freight side. On the transit side, we're seeing investments. We need to make sure that these investments are happening today and are not delayed until tomorrow.
Internationally, the opportunity for Canada is to really be business diplomats in countries where we haven't been before. We have a presence in places such as Sudan, in building their infrastructure, and in Nigeria, and in the Middle East. We've had success in Iraq and now we're pursuing successes again in Iraq.
Our competitive advantage is in our turnkey solutions. We can go in and do a preliminary feasibility study, put the specs together, lay the ballast, lay the track, and get locomotives in there, and we can do it at a competitive price, with on-time delivery, excellent training capabilities to make sure you have the local workers who understand how to maintain the equipment, and after-market service. We can do the complete package. As an association, we have to do a better job of telling that story, because on these trade missions, we need to put our best foot forward.
In this case, when it comes to transportation, we're seeing these countries that have nationalized systems, such as Russia, which is looking at their 2014 Winter Olympics and asking for Canadian input into how to design their Sochi line, because they see our successes, and not only in Vancouver. With their harsh weather, they have similar needs. They don't have the technology that we have. As far as population is concerned, we don't compare, yet we've been able to build on our strengths. We can't compete with some of the other folks out there, but we know where we are successful. We need to go after that market and make sure we have a good chunk of that piece of the pie.
We'll continue to do this and we do need to make sure we have government support in staying the course and ensuring that we don't close up shop. I'm not here to use scare tactics, but that's certainly the reality I'm hearing from my members. The fact that one of our larger members is now under bankruptcy protection is a testament to that reality.