INTRODUCTION

In May 2006, the House of Commons Standing Committee on Industry, Science and Technology (hereinafter the "Committee") began hearings on the current state of the Canadian manufacturing sector and the challenges facing this extremely important component of Canada's economy. Manufacturing is Canada's largest business sector, accounting for 18% of all of Canada's economic activity and providing employment for 2.1 million people. The study originally focused on four major issues and the impact that they are having on the competitiveness of the manufacturing sector: (1) the high value of the Canadian dollar; (2) high and unpredictable energy costs; (3) globalization; and (4) the availability of skilled labour. However, additional issues raised by witnesses (e.g., the effects of the regulatory environment) were also examined.

In response to these challenges, many manufacturing firms have restructured their operations, and employment in the sector has declined. Since the end of 2002, when the downward trend for the sector's employment levels began, manufacturing employment has fallen by 208,900 jobs or 9.2%. In 2005, the manufacturing sector was the economy's major source of job losses. This downturn is not part of cyclical pattern but rather reflects a structural change in the economy: a decline in the share of manufacturing in overall employment, production and value-added, with a concurrent rise in the share of services. This pattern is occurring across OECD economies. In Canada, another structural change, the rise in the relative importance of the resources sector, is also playing a role.

This final report provides the Government of Canada with an overview of how the manufacturing sector is affected by the challenges noted above. More detail and an update on each challenge are included in this report in comparison to what was presented in the Committee's interim report entitled Challenges Facing the Canadian Manufacturing Sector. Like the interim report, this report also highlights other, often industry-specific, challenges that the sector is facing. In total, the Committee heard from representatives of 15 broadly defined manufacturing industries, and the final report reflects a wider perspective on the challenges facing the manufacturing sector than was presented in its interim report.

In this final report, the Committee assesses many of the recommendations suggested by witnesses (detailed in Appendix D). Many issues and policy options, including those recommended by the witnesses, are presented under several broad policy areas: monetary, taxation, energy, labour, trade, intellectual property rights protection, regulatory, infrastructure and research, development and commercialization policies. This structure brings a certain coherence and tractability to understanding how specific policy measures respond to specific sector challenges. In the end, the Committee decided on a number of fiscal and non-fiscal measures and they form a body of recommendations to the Government of Canada on how it can help the manufacturing sector adapt to the challenges it faces. The Committee is convinced that the adoption and implementation of these recommendations, within the framework of an industrial strategy, will help revitalize Canada's manufacturing sector, making it more resilient and competitive for the benefit of all Canadians. Furthermore, the Committee emphasizes that urgent action on the part of the Government of Canada is required, and that preserving a competitive manufacturing sector in Canada should be a national goal.