Proceedings of the Standing Senate Committee on
National Finance
Issue 6 - Evidence - Meeting of April 22, 2009
OTTAWA, Wednesday, April 22, 2009
The Standing Senate Committee on National Finance met this day at 6:40 p.m. to examine the following elements in Bill C-10, the Budget Implementation Act, 2009: Parts 1-6, Parts 8-10 and Parts 13-15, and in particular those dealing with employment insurance; and to examine the Estimates laid before Parliament for the fiscal year ending March 31, 2010.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Thank you all for being here tonight.
[Translation]
This evening we continue our examination of elements in Bill C-10, the Budget Implementation Act, 2009. Afterwards we will examine the Estimates for the fiscal year ending March 31, 2010.
[English]
Yesterday morning, we heard from Export Development Canada and the Canadian Manufacturers and Exporters. This evening, we will continue our focus on Part 5 of Bill C-10. As I pointed out last evening, there are 13 parts but we are focusing on Part 5, which relates to the stability and the efficiency of the financial system. That is the heading the government has chosen for that section. To that end, we are pleased to welcome Avrim Lazar, President and CEO, Forest Products Association of Canada. Mr. Lazar is accompanied by Marta Morgan, Vice-President, Trade and Competitiveness, also with the Forest Products Association of Canada.
The floor is yours for opening comments and remarks. I believe we do not have any written remarks from you. If we do, then I have not seen them yet.
Avrim Lazar, President and CEO, Forest Products Association of Canada: No, but I will write something later. You already have enough paper. We understand that there is some affection for the use of paper here.
Honourable senators, thank you for inviting us here. This is a great topic. We, in the forest industry, are great fans of the stability of the financial system. One of the big problems we have been suffering from recently is its instability. I will talk briefly about the elements of the budget and then, if you permit me to do so, a bit about where the industry is at. If you still have patience, I will then talk about what can be done. I will try to do it in 10 minutes to give enough time for questions.
A lot of the things we were hoping for from the budget are there. Probably most important is stuff to help credit markets work. Our customers, our suppliers and the forest companies all depend on credit. You see it at every level. For example, if you are an Aboriginal in business — and we have thousands of Aboriginal businesses with whom we work — and you own five big trucks for hauling logs but you cannot get your loans renewed, you are out of business. They will take away your truck. If you are a stationery store and you have loans, you can no longer buy paper because the bank is not renewing those loans. This is happening all the way up to AbitibiBowater who are in trouble now — not because they cannot make a living but because, in these times, no one wants to take a chance on renewing loans. This is very important.
We are pleased that the government made this a central part of the budget. We are pleased with Export Development Canada. More than 90 per cent of our business is with Export Development Canada. We are pleased that the government and the corporation went to more aggressive support.
Also contained in the budget were provisions for EI work-sharing. This is terrific. There are some mills that could have closed if people could not share their jobs. This measure helps to keep them open. It is a good, pro-competitive solution that allows people to share not only the pain but also the gain of keeping jobs and keeping a mill in a town.
We were a little shocked that competition policy was snuck through the budget. I say "snuck through." It passed the scrutiny of parliamentarians but there was no consultation. It reminded me of American politics where you throw in a bridge or something in the farm bill. We were a little surprised by that. If we had been consulted, we would not have been generous of spirit towards that change. The Canadian economy is export oriented. We are a small, open economy. The idea that we want to have a merger policy that mimics the U.S., which is an internal-focused economy, caught us by surprise. That being said, it is done. It is good to look forward.
The industry, as many of you probably know, still employs 275,000 people directly — that is a lot of Canadians — in 300 towns dependent upon the industry. Even with all the job losses in the last two years, it has been 50,000. We are still a huge employer. A lot of those jobs are in rural Canada, in places where it is very hard to find a job. Almost all of those jobs pay between 30 per cent to 50 per cent above the average wage. Many are high tech and hard to get in rural areas.
We are suffering mightily now because markets have plummeted. The demand for paper is down and probably will not come back to previous levels. The demand for lumber is down but it will come back, as will the demand for pulp. The prices are lower than the cost of production now. It is hard. However, we are optimistic that we will be back. Demand for lumber will be back. We have been monitoring the purchases of tents in the United States and it appears that they are not moving to tents. They will continue to live in houses and those houses are built with wood. If you look at projected population increases in the U.S, they will need somewhere to live and they will build with Canadian wood. We know the market will come back. The market for pulp will return because the global demand is increasing. Furthermore, there are the emerging economies. People who did not use paper or have packaged goods will all be demanding paper. Even the most modest estimates of global growth are between 2 per cent and 3 per cent. That is a huge amount.
The story almost never told in the Canadian paper industry is that our competition is suffering more than we are. We know how badly the Canadian industry is suffering, but we do not talk about the Russian mills that have been closed because they were highly leveraged, or the screeching stop to expansion in Brazil, which was one of our most difficult competitors on pulp. The Brazilian industry is highly leveraged. The American banks tend to call in Brazilian loans before anyone else's. They have stopped their expansion. The Europeans are still sound but some of the biggest companies have gone down as well, and the European cost structure is difficult for them.
The interesting story is that, when markets come back, we will be well positioned. The challenge for us is this: How do we get from where we are when markets come back without losing our capacity, and how do we prepare to prosper when markets come back? If you wait until they rebound to prepare your economy — that is, if you wait until the recovery — someone else who is already prepared will steal your market share. We have two jobs: One is to stay alive long enough to enjoy the markets that we know are coming; the other is to get ourselves ready to be more competitive when the markets come back so that we can compete.
The world will not come back to what it was. There will be huge demand but everyone who has gone through this recession will come out with sharp elbows and hunger. We must think about how to get ourselves ready for that.
We have been suggesting that we look at the basic business fundamentals. We are not saying to governments that they have to get log prices up, because that is not the job of governments, but they do have to improve business conditions, and some simple things can be done.
First, governments can extend and make predictable, accelerated capital depreciation. Why? Because if people invest in Canadian mills, the mills become more efficient and more competitive. The government has been doing a good job of allowing accelerated depreciation, but doling it out a year or two at a time frankly is not good enough because these are big capital projects and people need a planning scenario.
Second, right now, we do get a tax credit for our investments in research, but most perversely, the government does not give it to us unless we are making lots of money. It is a tax credit and, unless you are profitable, it is not available. The very time when you think that some help should come to us is when we are not profitable, and making those tax credits refundable means that companies that invest in innovation and try to think their way out of trouble instead of begging for government handouts just get abandoned. We would like to see those tax credits refundable.
Other things can be done outside of the tax system. Those who heard us speak before will know that we think the railways' monopoly powers are a disaster for rural Canada. It is not the railways that are the problem. They behave badly, but they behave in an intelligent business manner. It is giving them monopoly power. More than 80 per cent of our mills are captive to one railway, and when markets are bad, they do not decrease their rates. When oil prices go up, they put a surcharge on, and when they go down, nothing changes. The railways do what any responsible enterprise does when they have monopoly powers: They treat their customers badly by giving poor service for efficiency of their own profits and overcharging. We are a country with lots of geography, and the rural communities in particular have to get their stuff from far away to where the markets are. If our railways, using the powers that government gives them, charge too much and give bad service, people in rural areas lose their jobs. We are not saying kill the railways. We are highly respectful of their efficiency and capacity. We are saying put competition in there.
When we liberated telecommunications, Bell Canada said that was it and no one would ever be able to make a phone call again. They needed the monopoly for investment and to service rural areas. Who would put a telephone line to the Yukon without a monopoly? That is absolute nonsense. We have lower prices and much better service in telecommunications because of competition, and we can introduce competition to railways.
The industry is aware that markets are looking for green products, and we have done a lot to improve our record. There is something where government help with some recognition of our green transformation could accelerate us to be advantaged in markets. Wood is only wood and pulp is only pulp until you ask if it was produced responsibly. We can differentiate what used to be a commodity into a consumer product that has an identity by marketing our environmental values, and by continuing our transformation into the greenest forest industry in the world.
I will mention three last things. Since you have no other witnesses, maybe you will indulge me.
The U.S. has a subsidy on black liquor, which is a biofuel. It is a somewhat surprising piece of legislation, and most U.S. senators say it was just a mistake. If the U.S. does not get rid of it soon, we will have to do something to match it because we cannot survive it. It is $300 a tonne on pulp, which is selling for $500 a tonne. It will just kill us.
There is the softwood agreement. I notice in the other house there is spirited debate on whether the government can help us on that. The debate is colourful but not always as informative as one would hope. The bottom line is that we need the softwood agreement or we will be in big trouble with the protectionist Americans, but it is not an excuse for government inaction. Many things can be done without countervening the softwood agreement. I do not think there is any real debate here. There should be some debate among trade lawyers as to exactly what is allowed and not allowed, but it is not a political question but a technical question.
I will stop there and again thank you for inviting us. I look forward to any and all questions. We appreciate the interest.
The Chair: Ms. Morgan, did you have anything to add?
Marta Morgan, Vice-President, Trade and Competitiveness, Forest Products Association of Canada: No, thank you.
The Chair: Could you tell us a bit about the Forest Products Association of Canada? Do you represent all of the industry, or is there another parallel?
Mr. Lazar: We only represent the parts of industry that are intelligent enough to join us. Luckily, that is 60 per cent to 70 per cent, depending how you count. We are coast to coast, from Newfoundland to way out in Vancouver Island. We tend to represent the larger companies because the smaller ones find it more interesting to play at the regional level and join the provincial associations. We do not represent the industry to the provinces. We let regional organizations do that. We do represent on national issues and globally. We talk on behalf of the industry at the UN. I chair the private sector's advisory committee to the UN on the forest industry. We have that role as well.
The Chair: Are the provincial associations also members of your association?
Mr. Lazar: No, the provincial associations are independent. We find that, if you try to get too much uniformity, you end up with not much to say. We all agreed it is best for the provincial associations to have policy independence. The issues overlap, and we do work closely together. They certainly are our cousins and, frequently, our brothers and sisters.
The Chair: I think I read in preparation for this meeting that all of your members need to have third-party certification.
Mr. Lazar: That is one of many things we have done on the environmental side. We have asked what people want from us on the environmental side. The first thing they want is to know that our products are from legal sources, because 10 per cent of the world's forest supply is from illegal sources. This is a huge problem for deforestation because the guys who steal the trees do not come back and plant the next night. It is also a huge problem for climate change. All our members have to have traceable legality. The public wants us to have outside scrutiny of our forest practices, so it is a condition of membership to be audited to a high standard.
We have committed to being carbon neutral by 2015 without any purchased offsets, from cradle to grave within our own value chain. We have reduced our greenhouse gases by eight times Kyoto now. In fact, we produce enough green power in our mills to replace three nuclear reactors, should you wish to do so. I do not suggest that. I think we should hang on to them.
The Chair: I want to put your industry in Canada, not just your membership, in perspective in relation to the automobile industry, which we are reading a lot about. You indicated 275,000 people are employed in the industry now.
Mr. Lazar: Directly.
The Chair: Do you have an indirect number as well?
Mr. Lazar: The economists in the government sometimes say you should multiply by two, sometimes by three. I use a bit of economics magic between two and three and have been multiplying by 2.5, thinking that I can only be off by half one direction or the other. It is pretty close to 1 million, but not over a million, if you talk about all employment.
If you go to a town that has a mill, it will have a tourist industry, but it is people flying in and out to go to the mill. That is who is in the hotel. The taxis are driving people back and forth. The cleaning company is cleaning at the mill. Of course, in town, there are merchandising agents, lawyers, notaries, et cetera. Two to three is probably a pretty fair estimate. It is close to 1 million Canadians.
The Chair: In terms of economic impact, can you make a comparison with the automobile industry so that we have a reference on the size of your industry?
Mr. Lazar: We employ more people directly than do all the major car companies combined and, of course, it is not in one or two ridings; it is right across the country.
I would say parts of the auto industry have been hugely adaptive, parts of the forestry industry have been hugely adaptive, but there is no doubt that, in the future, Canada's economic advantage will be in adding value to natural resources, which is what we do.
The Chair: In terms of percentage of gross domestic product, do you have any figure for the forest industry?
Mr. Lazar: I believe the last time we figured it out, it was 2¼ per cent.
Ms. Morgan: It was 2.1 per cent, and if you looked at it as a proportion of manufacturing GDP, we are about 12 per cent of total manufacturing GDP in Canada.
The Chair: In dollar terms, do you have a dollar figure for us? I do not know what the GDP is.
Ms. Morgan: We are in the order of about $65 billion of production now, which is considerably lower than it was a few years ago. It depends on when you look at the numbers.
The Chair: That is of the 12 per cent?
Ms. Morgan: Yes, it is.
The Chair: Do you have a comparison with the automobile industry for us on that?
Ms. Morgan: We are slightly larger as a percentage of the total economy and slightly smaller as a percentage of manufacturing. In terms of employment and breadth, I would say we are larger. In terms of manufacturing, we are a comparable size.
The Chair: Before we go to questions from honourable senators, how many in your industry do you believe are unemployed at the present time? What number are we looking at there?
Mr. Lazar: In the last two years, the job losses have been about 50,000.
The Chair: Do you expect that, when the market picks up, those 50,000 will be back into the industry?
Mr. Lazar: No, we do not think everyone will come back. Part of what happens in a time like this is mills consolidate, people find new efficient methods, so we do not expect employment to come back to where it was. However, we are looking for a way to come back in which those jobs are secure in the long term, and that means more competitive mills.
The Chair: That lays a good groundwork, and I appreciate your comments. I will now go to questions of senators.
Senator Mitchell: Thank you, Mr. Lazar and Ms. Morgan. You were here for the Kyoto legislation, Bill C-288. Of all the witnesses that I have seen on committees, you are one of the most memorable. It was memorable in a good way, and you have lived up to it today.
In fact, I have used your organization as a poster boy for environmental achievement. At the time you came two years ago, you were 44 per cent below Kyoto. When anyone says it cannot be done, I say talk to the forestry industry. Now you are at 48 per cent, which is eight times Kyoto, and while you were here, the Canadian Chemical Producers' Association was at 56 per cent, and we have had a number of other major associations whose membership is way below Kyoto. It can be done, and thank you for that leadership.
I am interested in the case you are making for the national green energy policy. Can you flesh that out, and tell us what you would put into it if you were the Prime Minister and writing it?
Mr. Lazar: Thank you, senator, for the kind words. I can tell you that lobbyists do not often get pats on the head, so we like it.
Regarding national green energy policy, the part that would interest us most is the use of bioenergy. Generally speaking, bioenergy has, from a policy perspective, been the poor cousin of wind and solar. I suppose wind and solar is what pops into people's minds when they think of renewable energy but, in fact, Canada has so much more capacity on the bio side than it does on wind and solar.
We would like to see policy that is grounded in a holistic assessment of where the public good lies. You can go to one side of the boat or the other side of the boat, but we want to see someone think it through. We have initiated a study of forest biomass and asked this question: Given different uses, what is the economic return, the social return, and the environmental footprint?
If you create incentives, for example, to just burn the wood for energy, it is green energy and does displace hydrocarbons, but you get approximately one-seventh the jobs and one-seventh the social impact than if you use it for manufacturing. We are quite worried that some governments, which are trying to be renewable energy enthusiasts, are just looking at one part of the equation, saying they have reached 20 per cent renewable and so will just burn the wood.
From an environmental perspective, if you replace fossil fuel with wood, you have to look at it from a life-cycle perspective. If you are sending a team of lumberjacks in a big truck halfway across the wilderness to cut down a tree, drag it to a boiler and then burn it down and only count what is happening in the boiler, you are fooling yourself. It is not dissimilar to the strange policies they have for corn in the United States, where you have huge fields of monoculture, heavily fertilized with nitrogen that takes a tremendous amount of hydrocarbons, and then because you are burning it in a car, you ignore all that and say it is an improvement.
We would like to see a policy that is grounded on a life-cycle analysis that looks at the environmental, social and environmental footprints. We are pretty certain that, once we did that, if it is waste based, it is a win-win-win situation. However, if you are harvesting wood just for bioenergy, you have to scratch your head.
We have reduced, for example, what we send to landfill by 40 per cent by burning it in our mills, and that gives us a tremendous reduction in greenhouse gases from landfill, which tend to be methane and hugely negative. Burning waste makes all the sense in the world. By taking methane from landfill, any time you have biological waste, you can turn it into green energy. We think that is great.
Once you go beyond that to growing or harvesting biological material for the purposes of energy, sometimes it will work, as when you have fast-growing alder or a crop. However, unless you do a life-cycle analysis, it might be public policy that is innocent of the full environmental and, certainly, the social impacts.
Senator Mitchell: I would like to pursue the ethanol. You make the case that is generally made, namely, that ethanol means burning food. I am always struck by the fact that nobody makes the case that we drink beer and wine, and growing those two things uses land that we could use to make food for people, too. In fact, you can eat grapes. However, it never gets to that.
With respect to ethanol, it is difficult right now, but if you do not get started, you do not start to develop new technologies, which are beginning. Every single initiative that anybody comes up with always has a problem; there is always a reason not to do it. With ethanol, you get started, and one technology might be using some of this wood waste to create it. Are you aware of any progress there?
Mr. Lazar: That is a point well taken, senator. You cannot start with perfect solutions. You have to try hard. There are ethanol solutions in which both the social, economic and environmental footprints are excellent. I probably would be strained to say the U.S. corn example is one of those. Certainly, on the Canadian Prairies, all sorts of projects are excellent uses of crops for ethanol. There are pilot projects across the country.
Ms. Morgan: Right now, the primary source of bioenergy in the forest products industry is wood waste, or wood waste that becomes essentially black liquor as a by-product of the process of using pulp.
One area that is being intensively looked at from a research perspective is the creation of cellulosic ethanol, which would be ethanol from wood fibre. It has many advantages from an efficiency perspective in terms of the amount of energy that can be generated from a given kind of wood fibre. That is currently at the R&D phase. Some companies in the United States are moving towards trying to commercialize it economically. That is the stage it is at in terms of the technology development.
Certainly, that is one path. There are a number of paths that the forest industry could take and that Canada could take on the technology landscape for both bioenergy and biofuels. There is also potential in biochemicals where forest fibre could replace fossil fuels in the creation of chemicals so we could essentially have green chemicals. All of those are being actively looked at right now. This is really a key time for Canada because we, as a small country, need to place our bets on some of these technologies and try to figure out where the best economic, social and environmental returns will be so that we can invest intensively in a few of them that will pay off down the road.
Senator Mitchell: One of the great ironies and a great illustration of what you are talking about is the heavy oil industry. I am from Alberta. They often say we do not have the technology to fix carbon, and yet, when they started processing or trying to develop heavy oil, they certainly did not have the technology and, in fact, they were absolutely not remotely commercial, and yet they kept going. That is what I believe is very possible in your case, or in the case of fibre for developing other sources of energy.
I believe it is absolutely certain that the U.S. will have a cap-and-trade system. I believe that this government is not preparing us for it. Do you have some ideas of where a cap-and-trade system that we were not prepared for might bite, where advantages might exist for your industry? For example, cap-and-trade will come with trade, with offsets. Have you given some consideration for the offsets that your biofuels would create that you could sell?
Mr. Lazar: Yes, we certainly have. Our analysis of cap-and-trade is it could be brilliant or it could be far from brilliant. It depends on how it is implemented; how the capacity to emit is given out; how much credit is given for early action; whether, for example, the sequestration and products are accepted; whether people are held accountable for the end of the life cycle. If you just look at one of our mills, the only question is how much are you giving out from the mill? We could go to zero emissions. Our target is to be 100 per cent renewable energy out of our mills on a net basis but, if the paper we produce ends up in landfill, it comes out as methane, which is very harmful.
One of the key things is to have a broader life-cycle analysis in the cap-and-trade so it does not create perverse incentives in one place in the value chain and drive other things happening.
To give you an example, the European system, which only looks at whether you are using biological fuel, is buying wood pellets from Canada. We send a team out through the wilderness; they chop down a tree; we turn it into pellets; we put it on a boat; we send it to Europe; they count it as an environmental plus because they are only burning biofuel. The key on cap-and-trade is to make certain that it is sensitive to the whole life cycle.
The other thing which we have shared with the government has to do with the protectionist mood in the United States, and I think there is no getting around it. When people are losing their jobs, there are proper pressures in a democracy for a government to find a way of helping them, and protectionism is one of them. Given that everyone is committed to not being protectionist, we will see protectionism coming in all sorts of costumes. Cap-and-trade, climate control, will be a very tempting costume and it may well come that the protectionism in cap-and-trade may well be in a detail.
We have asked Minister Prentice and the department and also Minister Day to keep us very close when they are negotiating this. They may think it makes sense because they do not know the technical details but, in fact, by changing this definition or year you can skew things this way or that way. I am close with my colleagues in the U.S. who represent their industry, and they certainly have their eye on the possibility of doing that.
Senator Ringuette: Thank you for being here. I have a pulp mill in my hometown. The issue of black liquor seems to be very important right now. You have mentioned it. Can you provide the committee with more information in regard to the impact of the cost and what actions you are looking for?
Mr. Lazar: Ms. Morgan, do you want to talk about the impact? We have been doing a little study. How far have we gotten?
Ms. Morgan: In generalities, the U.S. government, as part of their stimulus package last year, made some amendments to the alternative energy tax credit in the U.S., which enabled pulp mills to become eligible for a credit not available previously.
They are eligible for that credit essentially by taking black liquor, which they already produce in their mills as part of the production process, so black liquor is legitimately a renewable fuel. The pulp industry has been utilizing it for many years to supply its own power needs. Under this credit, they basically add some diesel, so they add a fossil fuel to the renewable fuel, and can claim a credit which we estimate to be in the order of $200 to $300 a tonne of pulp. Given that right now the cost of production of pulp is in the order of $500 a tonne, and in some places the spot market price of pulp has been as low as $400 a tonne, this is obviously a very large subsidy.
We are having some analysis done now to quantify the impact on Canadian mills, but we can say already that it is potentially huge, depending how long this credit stays in place. We know of companies who have mills on either side of the border that are actively planning to close down their Canadian mills and reopen U.S. mills that have been shut. Much less efficient U.S. mills will be brought into production while more efficient Canadian mills will be closed. We do not have the numbers yet, but it is significant given how large the subsidy is.
Senator Ringuette: The second part of my question was what action have you taken so far to try to par this black liquor subsidy of your counterpart in the U.S.?
Mr. Lazar: There are really three avenues open; none of them are pretty. The first is to hope it will go away, which I know sounds absurd, but it is not absurd because it is a surprising thing to give people an incentive to add fossil fuels to their biofuel. Certainly, American senators have been clear that they do not expect it to last very long. They are slightly outraged, but I would say that is probably the worst possible option because, knowing how the U.S. political system works, it takes a while for things to be traded off this way and that way.
In a very short while, the American mills will receive funding. International Paper now is getting $70 million a month. They can invest that in their mills, even if they only get it for four or five months, and upgrade and be more competitive. Given how bad markets are, our mills just cannot last. We are talking two or three months before we see closures. Even though there is a reasonable chance it will not last, planning on that, I think, would be folly.
The second course of action would be to go to the Americans and say, "Stop it. It is not fair. It is bad trade practice," et cetera. My worry is, if we do that too loudly, they will say, if it is really bad for Canadian jobs, maybe it is not such a bad idea. We have been quite reluctant to shake our fists at the U.S. because it may have a reverse impact.
The only thing you could do is to find some way of offsetting it with a Canadian program. We certainly would not suggest a program that is environmentally regressive like the U.S. one, but something that better recognizes our green energy performance would be very welcome.
The debate now is how do you do it? Could you, for example, do something less heroic than the U.S. program but that would stay in place to create incentives for green performances in the long term, or you do something as strong as the U.S. program but expect that, when they back off, we will back off? Do you make it specific for the forest industry and then find yourself gaining the attention of the American softwood lumber deal lawyers? Do you make it of more general application and find the federal treasury greatly challenged?
To be fair, there is no easy path. We have been talking with the government and, certainly, the ministers and senior officials we have been talking with are very engaged. We think there is a very good faith full-court press to find what solution would be the most viable, and we are hoping to see it soon.
Senator Ringuette: I hope so, too. The last three years have been very disastrous for the small communities in your industry. We have not seen any bailout to the scale of what is being discussed now for other sectors.
It seems that there is a general attitude in Ottawa — and it is not based on politics — that there is so much forest in Canada that the forest industry will survive for decades, while some other sectors might not if we do not intervene.
You understand what I am saying. It is a big concern. I take also the issue of the railway monopoly that is very costly to the industry in regard to the cost of transporting these goods from local, rural communities to the Réno- Dépôts and Home Depots of this world.
In the softwood agreement, there was $1 billion left for the U.S. forest industry to look for other markets. This is at the same time Canadians also have to look for other markets. What kind of help has the federal government provided the Canadian industry to access and look for new markets?
Mr. Lazar: That is a good question. Actually, the previous budget did have significant funds for market development. I will give the government full credit. I would have wanted more, but I cannot say it was not a reasonable amount.
Because we were focusing on long-term competitiveness instead of only the short term, we had lobbied for money for research, innovation and market development, thinking that is part of our future. Both of those things showed up in the budget.
Could we use more? Always. I am more worried now about our basic competitiveness, the taxes, the railway, the cost structure in Canada.
Senator Ringuette: The black liquor.
Mr. Lazar: That is right. If we have a competitive product at a reasonable price, we will find a way to sell it. If our stuff costs more to make than someone else's, all the guys wearing maple leaf pins running around Asia will not save us. We have the quality; we need the price.
Senator Ringuette: This is a short question. In regard to what you are looking for, have you made any presentation to any committee of the House of Commons?
Mr. Lazar: Not recently. We certainly did lots in past months, but I do not think we have been there for a while.
Ms. Morgan: There was a subcommittee set up under the Standing Committee on Industry, Science and Technology where you testified three or four weeks ago. Also, the Standing Committee on Natural Resources did a full report on the forest industry last year.
Senator Ringuette: There have been many new events.
Mr. Lazar: Actually, that report is very good. It is an all-party report; there is a lot in it that has not been implemented. Parliamentarians did a good job with that one; not too many lowest common denominators. Most of it was pretty edgy.
Senator Neufeld: Thank you for being here. It is interesting to listen to some of the things that you are saying. I am sure you are aware of our pine beetle epidemic in British Columbia and Western Canada.
In British Columbia, there has been a lot of work towards what you do with those stands, rather than letting them be razed by a forest fire, which will probably take place at one time. Cellulosic ethanol is one — the government of British Columbia has put a lot of money to research and development of cellulosic ethanol, and converting it also as a mix in diesel fuel. Those things are ongoing.
As far as pellets go, it is the same type of thing. That is a waste wood that there is a market for. The industry — I agree with you — is very innovative and can go out there and create those pellets, send them to Europe, and they will mix them with coal for coal generation and get a credit for it. That market is actually quite huge and starting to use something we used to just slash-and-burn. You are aware of slash-and-burn, obviously. It comes down to, do you just leave it in the forest and create huge fires at a certain time of year to burn all this slash, or do you move a lot of it to a central point? That costs money, time and consumes energy.
You have to clearly look at those kinds of things.
Those are markets. I know there are companies in British Columbia that actually use the waste from their plants to displace natural gas, and do it quite well. In fact, I have been to some of those plants in British Columbia, and the industry has been encouraged to sell more energy into the system. They already generate a lot of their own electricity, but there is also the ability to use their waste and other things to sell into the system.
I agree with you that the industry has been very innovative, has worked hard on a lot of things. The British Columbia government has worked hard on trying to work with the industry on creating new opportunities and, in fact, working with market development. One per cent of all stumpage in British Columbia goes to market development, particularly in Asia, trying to get into the Chinese market to a degree to diversify a bit instead of just having the U.S. market. That is probably a tougher sell than something that is decided on a Friday afternoon and on Monday it is done.
You had not mentioned any of those things, and although you talked about it, some of that is actually happening in Canada. I wanted to put on the record that it is happening in British Columbia.
I want to ask about railways. I do not disagree with you, I know they have a monopoly. Are you talking about more railways?
Are you talking about using the tracks with multiple users to get competition going?
What would be your suggestion? To understand our geography and what it takes to build a railroad in British Columbia, it is more than going across southern Alberta. You do have to get to port. You have to get to that Pacific Ocean out there to send your product someplace. What would help with that kind of competitiveness?
Ms. Morgan: There are different options you could look at. You have seen versions of those options in the telecommunications industry. You can look at something like running rights, which is essentially allowing other players, other railway lines to run over the lines of the major railways. You create competition that way.
Mr. Lazar: That would be with fair compensation.
Ms. Morgan: Yes. You could set a rate that would allow one railway to run over another railway's line at a predetermined rate. This is already done in the existing Canada Transportation Act within urban areas. Within a 30- kilometre radius, if a shipper has access to more than one railway within that radius, they are eligible to use a regulated inter-switching rate in order to get to the competing railway. It works well. That is why you do not hear the kind of dissatisfaction among shippers who have access to competition because they are in more urban areas, as you do from shippers in rural areas who do not have access.
There are a number of ways to do it. Variations on that have been done in other industries. We think it is time for the government to start looking at more fundamental reform.
Senator Neufeld: I appreciate what you are saying. I guess that may work in some areas, but I want to say something about that as far as British Columbia goes. If you are going to the West Coast with your product, you have to get through the mountains. I am not a railway person, but we have had that discussion in British Columbia a great deal. You cannot get any more trains on the track than are there today. It has slowed down a lot, so let us back up to when things were a lot busier. You could probably do that today. You could mine more coal from the southeast part of the province but you cannot get it to port. In that respect, it is no different from wood. If there is not enough room on those tracks — CN, CP and BC Rail, but going east-west it is CN and CP — there are huge costs that will have to be borne by someone to lay more track, double it, twin it, whatever they do to create room.
It might work in some parts of Canada where you can do that. Where you end up with a bottleneck is trying to get through the mountains.
Ms. Morgan: There are two separate issues. One is our overall transportation system capacity. We saw, prior to the recession in Western Canada and the Western United States, serious issues in terms of overall capacity of the rail system and port system. It is challenging and costly to improve that infrastructure, but I believe that it is something we will have to contend with in North America because this problem will resurface.
The other issue is, do you get competitive pricing within the context of a constrained transportation system? Even with capacity constraints, competition would provide fairer and more competitive pricing to shippers as opposed to all of the rents from scarcity going back to the railways.
Mr. Lazar: It is fairly simple to calculate something. If you compare those lines where there is competition and those lines where there is a monopoly, the difference is obvious.
Senator Neufeld: I do not disagree with you. Competition is good. I am all for competition, but I could enlist you after this discussion to help us in British Columbia to get the rest of Canada, or specifically this city we are in now, to recognize the problems. They have, to a degree, in the port expansion, in getting some bridges and roads built in Vancouver so we can get the goods to the ports. That has helped us a bit but that is just the tip of the iceberg. The real problem is getting something through the mountains. That is not quite as simple as one might think. You could help us from that part of the province. If we want to get more activity happening, we need more rail. I do not disagree with the competition part.
Mr. Lazar: The industry is seized with transportation and we are happy to work with any parliamentarians who want to work with us on this. We have been talking to the Department of Transport and Minister of State Merrifield, who is taking more interest in this because Minister Baird has to get the money out into infrastructure, which we applaud, but we sense a great deal of receptivity from parliamentarians for practical solutions.
Senator Neufeld: I am happy to hear what you said about the softwood agreement, because there are people saying we should scrap that agreement or just renegotiate it. I am not saying it is a perfect piece, and you would know more than I would, but thank goodness we have it because the industry would be in a lot worse shape today than it is now if we did not have that softwood agreement.
Mr. Lazar: If you are a businessman and you do not think you can make it to the end of the year, and if you scrap the softwood agreement, maybe the government will give you a handout and you can make it through, let us do it. However, if you are talking about the majority of the industry who plan to be here year after year, it would be foolhardy to expose ourselves to that.
Senator Neufeld: I am not talking so much about industry as political parties. You do not have to comment on that. I can get the inference out of that.
The Chair: Each of us could get his or her inference out of it.
Senator Di Nino: Mr. Lazar, in listening particularly to your opening remarks, I am amazed that the representative of an industry that has suffered some major setbacks has come here with a very positive attitude, one that makes it easy to say, "We can listen to you and take what you are saying seriously and hopefully advance the cause for you a little bit." I thank you for that. It is refreshing. We often see nothing but the negative side.
Let me go back to a question of my colleague — we are the two city slickers. I think we understand, but speaking for myself, how is black liquor used? It is a fuel, we understand, but how it is used?
Mr. Lazar: It depends on which party you go to. I am kidding, of course.
Senator Di Nino: It is also of interest to the audience because, if we have questions, those who are watching us may have questions.
Mr. Lazar: If you permit, I will comment on the positive because there is a point underneath it that is worth taking a little time on. Let us start with black liquor. In a tree there are fibres from which we make paper, held together with a lignin, which is like a glue. This glue, which is what turns into black liquor, is similar to petroleum. When you are making the paper you wash that carbohydrate, that petroleum-like stuff, out and it burns like oil. We call it black liquor because that is the colour. I believe chemists call solutions of stuff `liquors'. That is just the natural part of the tree that holds the fibres together. We want to get the fibres apart so that we can make them into pulp and paper.
Senator Di Nino: So far I understand, but how do you use it?
Mr. Lazar: We then put it into our boilers and, instead of burning oil, we burn it, create steam, and run the mill.
Senator Di Nino: It is really a fuel to burn?
Mr. Lazar: That is right. Most of it we use just to power the mills, which means that we do not have to use fossil fuels. I think now we are up to 60 per cent of our energy comes from renewable sources. Most of it is from that sort of thing. Also, we sweep the floors of the sawdust and the bark and we use that as well. The pulp mills are particularly dependent upon the black liquor because it comes in in the pulping process of getting the fibres from being in a tree, and gets freed from the sticky black substance.
Senator Di Nino: Can you use that more efficiently?
Mr. Lazar: Yes.
Senator Di Nino: How do the Americans subsidize this?
Mr. Lazar: It is a peculiar story. Eventually, it will become a classic of public administration.
The Americans rightly said they have to get the percentage of renewable fuels in their vehicles up. They wanted to do that with trucking and commercial so they created an incentive for biodiesel. To get that incentive of 50 cents a gallon you have to add a minimum amount, and I do not remember what it is, but at least 10 per cent or 15 per cent of biofuel to your diesel. Some clever engineer in an American mill said all you have to do is burn fuel that has a certain percentage of biological energy in the diesel. They are 100 per cent biological so they just added the diesel.
If you read the law, they are entitled. We are not talking millions; we are talking billions of dollars out of the pockets of the American taxpayer into these companies that have not improved their environmental performance. Now for those companies it obviously makes some of them turn from being atheists into believers. It is a miracle. Some of the senators are saying, "We never thought of that," and others are saying, "Do we want to take it away?" It has become politically delicate in the U.S., but it is an accident of public administration in the United States.
Senator Di Nino: I believe I understand that.
Mr. Lazar: I want to talk a bit about the pain and the promise. It would not be fair not to talk about both. If you are in one of these towns when a mill closes, it is not losing your job but it is losing your whole community. Everything closes — the restaurant, the grocery store. I was talking to someone whose uncle owned the grocery store and his sister- in-law drove the taxi. None of them have jobs. The house that you scrimped and paid for all your life that was worth $180,000 cannot be given away because there is no community left.
The medical impact is great. All of a sudden there are stress-related diseases and social repercussions. Teenagers start to act out more than usual. There is family abuse. It is very hard and, when we see the statistics, it is easy to think of it in terms of, well, economies churn, but it is in some ways far worse for us because they are one-industry towns. You look around and it feels like the world is ending.
The promise: We as Canadians have this incredible gift of natural resources. You look out at the world and what is happening? Billions of people are being born, global GDP will double in the next 20 years, and what will be scarce? Natural resources will be scarce. You can replicate computer chips or fancy iPods. Name the technical product and it is a commodity because it is infinitely replicable. The only difference between a commodity and an innovative product is six to seven months and then, all of a sudden, it is infinitely replicable.
Natural resources, water, energy, wood — nature is not replicable. In addition to our social advantage of living in a place that is so blessed, our economic advantage will be being able to extract and process natural resources. Being the most brilliant and the most environmentally responsible at extracting and processing will maintain our standard of living. I keep getting people saying to me, "Why not add more value?" The guys making furniture in China get paid nothing. The guys in our mills get paid really good wages.
I say we will take any jobs we can get, but those jobs up the so-called value chain are cheap labour jobs, and the jobs down the so-called value chain are high tech, high-paid, high-quality jobs. We should stop beating ourselves up for hewing wood and realize what a blessing it is to be able to have the world's most advanced mills and the most advanced equipment in extracting natural resources, doing it in an environmentally responsible way. Instead of paying near slave labour wages, which is what happens up the so-called value chain, we are paying good wages and we should just say thank you rather than beat ourselves up about not competing with the Chinese. Even with IKEA, people think there is Swedish furniture. They do not make it in Sweden; they make their furniture in Eastern Europe and China.
Senator Di Nino: I am glad you have brought in the suffering and pain because the folks who are watching should know that, but I am still buoyed by the way you are taking the high road and going that way.
Who are your major competitors worldwide?
Mr. Lazar: It is a great question. We can walk through them. Let us talk about Brazil. Brazil has a brilliant forest industry. They take land, they clear-cut it and they grow Eucalyptus trees, last time I checked, in seven years. One of my colleagues said they are down to six-and-a-half and will soon be down to six. They have mapped the entire genome of the Eucalyptus tree and, if you go to a Brazilian plantation, it is clone number 1,082, and over there is clone number 2,011. They have very modern factories and, frankly, they are a brilliant industry. However, they have one big problem. Their situation for growing is too good and it makes no sense in the future to use that land for trees when you can use it for biofuel. In Brazil it will be sugar cane for food.
My Brazilian colleagues are saying their expansion will only last a little while longer because both social and economic imperatives say, if you are in a place that is good for growing high-density, speedy-growing crops, you will grow biofuel because of the huge demand for food. We actually will end up quite lucky that way.
Another key competitor is Russia. Russia has the same blessings we do — huge boreal forest, energy and water. Their problem is infrastructure. They have been expanding quite quickly but have been stopped in their tracks by this crisis but they will come back to it. They do suffer from gangsterism. It certainly exists in the forest industry and it is very hard to grow a good industry if there is no trust. Business depends upon a certain element of trust. Until that is dealt with, it will limit growth.
The other problem they have is a huge amount of illegal logging. They have a very high percentage that comes from there, and the world is slowly digging in its heels about illegal logs. They will be competitors but it will take them a long time. More than us, Russia has a lot of geography, so if fuel prices are high, Russian logs become expensive. They are very far from any markets.
The Europeans have a very good industry. They are very efficient and tend to be global.
Senator Di Nino: Is that mainly up in the North?
Mr. Lazar: Mostly the Scandinavians.
There are big challenges. The cost structure of European energy policies has placed a large subsidy on energy from bio-sources. The wood that they would have put into pulp and paper expansion has become very expensive because they are competing with the bioenergy industry and they are having trouble obtaining raw logs. They used to depend on Russian logs, but the Russian government is beginning to tell them to build their mill in Russia.
Senator Di Nino: Are they suffering the same as Canada?
Mr. Lazar: Absolutely.
Senator Di Nino: Is it more?
Mr. Lazar: It depends on where you look. The Brazilian industry is in deep trouble because they were highly leveraged. The Europeans are suffering as much as Canada. I am very close to the European association. It is very bad for them.
This is a global economic meltdown and we experience it as it happens in Canada. Everyone is suffering. My Brazilian colleague was saying that Canadians and Europeans do not understand this because we have employment insurance and medical insurance. Their mills were supplying the school, the hospital, the nurse and the housing. When Brazil closes a mill, people do not only lose their job, they lose their whole social support network. They are hurting.
Senator Di Nino: The chair will ask me if I want to go on a second round. I will tell him the answer is yes before he asks me.
Senator De Bané: In the last few days, The Globe and Mail wrote a critical editorial of your industry. Essentially, they said the forestry industry has not been managed properly. During the good years, not much has been invested to improve productivity. The industry distributed dividends generously during the good years and is always on the verge of going belly up. People read less today; they use computers and they watch TV. It was a harsh opinion of the forest industry. They even said that the impact on the Canadian economy is not as big as the automobile sector, et cetera.
I am not as knowledgeable as you. Have you thought about writing to each member of the provincial legislatures, members of Parliament and other public relation campaigns to answer the serious criticisms in that editorial? Will you answer that editorial and those criticisms?
In your press release today, you say that you do not want more discussions and talks with bureaucrats. However, is this opinion that we see in The Globe and Mail editorial about the forest industry widespread among bureaucracies?
Mr. Lazar: That is a great question, senator. The opinion is mixed. Generally, the Montreal-Ottawa-Toronto corridor thinks we must be kidding when it comes to the forest industry. There is no understanding of how important it is. There is a feeling in parts of the federal bureaucracy that it is a sunset industry. That is the old attitude that, if we are not making computers, we are somehow not economically relevant.
In fact, the opposite is true. The Chinese will make computers and they will not get paid much for doing it.
Attitude is an issue. We had an op-ed in The Globe and Mail that talks about the things I have been discussing tonight. They published it with statistics and that is fair. There will probably be another one in Monday if they accept it. We submitted it and they were interested. We are putting out our point of view.
There is some truth in what The Globe and Mail editorial said and some half-truths. A company's faith depends on three things. First are markets. AbitibiBowater is the world's largest newsprint producer. Newsprint demand is going down and Craigslist is killing them. The newspapers' business model was dependent on classified advertisements. The classifieds supported the news.
Retail advertising also supports newsprint. In addition to the structural problem of people switching to the Internet, the recession means that the big spreads of retail advertising are down. There are markets and there still will be demand for newsprint, but it will never be what it was.
Second is business strategy. If you look at Canadian companies, some have guessed right and some have not. The world of business is such that the rewards and punishments are not subtle. Analysts looking at individual companies have different views. Much of what we know AbitibiBowater has done in the last while has vastly improved their competitiveness. They have moved from low in the ranks to rather high.
Overall, the Canadian industry has improved more than the U.S. industry and more than Canadian manufacturing. A lot of that is due to the softwood barriers. In order to compete with the tariffs, we had to get stronger and smarter.
Third is government policy. In Quebec — to a lesser extent across the country and, certainly, in Ontario — there are policies saying that each community has the right to process the wood of its neighbourhood. People own the trees and should get the jobs from them. It is like the lumberjack's version of a chicken in every pot. Every town will have a saw mill.
When markets were good, the dollar was 70 cents and the Brazilians had not figured it out yet, it was brilliant policy. It helps to keep rural Canada alive. Spread the wealth and do not let the large companies centralize. Let us build wealth everywhere. We did not like it, but democracy is to provide for the will of people.
Then markets crashed; the Brazilians figured it out; the dollar went up; and the policy does not change. Where you have three small inefficient mills, now you have three failures. If we had invested in one large mill, we would still have the jobs. However, when we tried to invest in one mill the provinces said no, you will not get the wood, period.
B.C. used to do it and they have stopped. Ontario is halfway in-between and Quebec is still there. What started as a social policy has turned into a social disaster. The industry was stopped from investing because we could not get the wood supply.
Often, when we had mills that were losing money, we said the province will have to stop this. There is only so much money we can lose. They responded to say that there would be no more wood for other mills.
There are policy reasons for the lack of investment and some of the lack of efficiency. It is easier to discuss now, but it is very hard to fix it. I have not seen any major change in attitude. There have been some changes, but not the degree to which there has been a change in markets.
The Globe and Mail only told part of the story.
Senator De Bané: I hope you will provide the article that was published, as well as the next one, to all members of the different provincial legislatures and to Parliament.
Finally, I would like to ask you a personal question. I read on your cv that you have been quite involved in public policy at some point before joining the forest industry. Can you tell me something about your involvement in that?
Mr. Lazar: For 25 years, I was a public service employee working in public policy. I worked for the departments of Agriculture, Justice, Environment and Human Resources doing everything from Kyoto to social policy, child labour policy and justice policy. It is good to know how the sausage is made if you want to influence the recipe.
Senator De Bané: I can see that you understand social and public interest issues; it shows by your way of analyzing issues. I want to commend you for that.
Mr. Lazar: Thank you. It is turning into a good night. Just keeping a job now is good.
Senator Callbeck: Thank you for appearing this evening. I have two or three questions to ask. One is about a report that was put out within the past year by the Standing Senate Committee on Agriculture and Forestry with respect to rural poverty. It was entitled Beyond Freefall: Halting Rural Poverty. It talks about the forest industry and the importance of it to rural Canada. One of the recommendations is that a national summit be convened to develop a national forestry strategy.
I know that, recently, Quebec and the federal government have set up a task team to coordinate the efforts in Quebec. I am wondering what your feeling about that is. Do you think that is the route to go, province by province? Or should we be following the recommendation of that study?
Mr. Lazar: I strongly feel that we cannot take a province-by-province approach because what happens in one province completely impacts the others. If some form of advantage is given to Quebec, that means people trying to earn a living elsewhere lose their jobs. The national government's role is to deal with things nationally.
The other problem is, in addition to being linked and competing for the same markets across the country, the industry is also linked because we all depend upon the softwood agreement. If something is done by a federal- provincial task force focusing on Quebec that undermines that agreement, a lot of people in British Columbia will lose their jobs.
We put out a press release that was uncharacteristically negative on that task force for two reasons. First, we did not think that this sort of bilateral stuff is the way to develop policy. Second, announcing four weeks of bureaucrats talking to each other felt to us like a stall tactic. I do not mean to be unsympathetic, but we do have an all-party report on the forest industry. There are not too many mysteries to be solved, and certainly none that will be solved in four weeks. We would rather governments got on with it. It is very good for federal-provincial bureaucrats to work together — we applaud that — but we hope it is not a breakthrough. We expect it to be business as usual.
Our general inclination is not to be too critical, except this one did not win any enthusiasm from us. That is probably an understatement.
The Chair: That particular news release has been distributed in both official languages to all honourable senators. I thought you should know that.
Senator Callbeck: One of the articles quotes you saying that urgent action is needed in certain areas. You are talking about ensuring access to credit.
If the measures that are in this budget are implemented, will they be enough?
Mr. Lazar: If they are well implemented — it will never be enough. With government programs, you cannot replace a financial system. Business is basically nourished by credit. It is like oxygen; if there is not enough oxygen, it is hard to burn anything. Without credit systems working, business is badly affected.
There has been a meltdown in financial systems. The government did, we think, the right thing in stepping in and trying to offset that meltdown, but it will never be enough because the government cannot replace the market.
That being said, we like the attitude. We like what was announced. We think Export Development Canada has stepped up in a way that is quite admirable. They have extended their mandate, they have gotten braver and we will not criticize that.
Senator Callbeck: Do you think that any of the measures in the budget might be attacked by the Americans as being inconsistent with the softwood lumber agreement?
Mr. Lazar: No, I do not think this budget had anything that could be attacked. Our problem with tax on softwood occasionally has been more often with provincial initiatives. Sometimes, with things that are business as usual, the exigencies of democracy mean that people are covetous of attention. If you are doing something fairly normal and you can get attention by making a big fuss about it, you do; that is how people get re-elected. Unfortunately, when people do that around the forest industry, the Americans see it as a new subsidy.
We have had that with several provinces where it was not too big a deal of what they did, sometimes promising money that we already had, sometimes promising money that never flowed, or sometimes making adjustments that are normal.
I am not being overly critical of this because democracy has its own impacts, but the Americans see that the minister just said they have given that. I think this budget showed admirable restraint in that respect.
Senator Callbeck: The other question I had was on employment insurance. You mention how you are very positive about work-sharing.
Are there other suggestions you could make that would help your industry under the employment insurance program? We have had many people as witnesses make suggestions for their particular sector. I am wondering if you have any.
Mr. Lazar: I know many people are asking to waive the two weeks of waiting. We are not convinced that will change very much, and it will cost a huge bundle. Has anything else been arising?
Ms. Morgan: Nothing very specific. What we are seeing is that, because this industry was hit so early in the recession, particularly the lumber side of the industry because of course it was the U.S. housing market that started all of this, we are seeing more and more of our former workers now falling off EI. They will have used up their benefits.
The Chair: Are you indicating that the five-week extension is a very good thing for your industry?
Mr. Lazar: It is very good.
The Chair: It is important to make that point.
[Translation]
Senator Rivard: Mr. Lazar, I bring you back to the news release you published on April 20. The third point concerns rail transportation. From reading the paragraph, in which you talk of inflated prices, there is more or less a monopoly, since two companies, CN and CP, own the railways. You suggest that the federal government should intervene to end this abuse. In what way do you expect the government to react? With a law or a control, a bit the way, in road transport at one time, when between Quebec City and Montreal, it cost so much, regardless of the company? Is that really what you want the government to do?
Mr. Lazar: I'm going to let Ms. Morgan answer that; it is her file.
Ms. Morgan: The government already took action during the last session of Parliament. In the context of Bill C-8, it created some tools so that the companies can counter unfair practices in the rail sector. This will help us.
[English]
Bill C-8, which already passed, will help shippers in that respect because we will be able to challenge poor service and rates more effectively.
Mr. Lazar: In the past, we had to challenge one company at a time. The railways always had deep pockets and we would have to spend $1 million in the process. Bill C-8 allowed us to gang up a little bit a take multiple aspects to final offer arbitration. Final offer arbitration is a great system where both parties put in their best guess and the arbitrator chooses one or the other. Your success depends upon your capacity to be reasonable. We have more confidence in our capacity to be reasonable than in the railways' capacity to be reasonable. When shippers have challenged on final offer arbitration, the tendency is to win but it costs so much that few people went through the process. We thank the government for this new system because we can now go as groups. If you do it often enough, you do not have to do it any more because the standard of fairness becomes integrated into the system; and that is good.
That deals only with peripheral issues, so the next step is to find some competition. There is a regulation on inter- switching distances if you are so close to a main track that people can come and get your stuff. It night be a simple thing to increase that but we are still working on the technical aspects of it. We will come out mid- to late May with a full-scale lobbying campaign that will be quite detailed.
[Translation]
Senator Rivard: I share your opinion concerning Bill C-8 on competition. It will get companies to be more reasonable. Proceedings have already been brought against oil distributors. The same thing could happen for the rail transportation industry if it is realized that there is a monopoly fixing the prices. Hopefully Bill C-8 will provide the solution to your problem.
Mr. Lazar: I have to confess that I do not have anything against CN or CP. They are excellent companies, efficient and smart. It is just a problem of regulation and law that gives them powers forcing them to overcharge.
Senator Rivard: So we just hope they read Bill C-8 carefully to bring them back into line.
[English]
The Chair: Honourable senators, that concludes questions for this evening. I thank our witnesses for giving us a good background on an important industry in Canada. Please forward to the clerk of the committee any additional comments that you may have resulting from our discussion.
Mr. Lazar: I would be happy to do that.
The Chair: We are now charged with understanding your industry much better than we did before this evening and we are most interested in seeing that it recovers quickly.
Mr. Lazar: At times when you go before a committee it can be unclear whether people are going through the motions or there is a real curiosity. The openness and caring that you have shown means a great deal to us.
Ms. Morgan: We appreciated being here.
(The committee adjourned.)