Economic Relationship between Canada and the United States Committee on April 29th, 2021

[Jean Simard]

As mentioned at the beginning, because of the demand in the U.S. market and the incapacity structurally for the U.S. to respond to its own domestic demand, the 2.2 million tonnes will still go to the U.S. The problem is downstream. It's Canadian companies using Canadian metal that are pushing the metal to the U.S. to contribute to infrastructure projects or federally sponsored undertakings. That's where the hit will be, more so than upstream.

The metal will always find its way to the U.S. The problem is the small mom-and-pop shops that make parts and components used in tramway projects or city transit systems that are federally sponsored. That's where—

[Leona Alleslev, Conservative, Aurora—Oak Ridges—Richmond Hill, ON]

If we're not successful—

[The Chair, Liberal, Raj Saini]

Ms. Alleslev, make it a quick question in 25 seconds, please.

[Leona Alleslev, Conservative, Aurora—Oak Ridges—Richmond Hill, ON]

Thanks.

If we're not successful, what is the impact and what's the plan B?

[Jean Simard]

Again, I think success is more important for downstream players than for primary producers. Our metal will still go to the market because the market requires it.

[The Chair, Liberal, Raj Saini]

Thank you, Ms. Alleslev.

We'll now go to Madam Bendayan for six minutes, please.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you very much, Mr. Chair, and thank you to our witnesses as well.

I want to begin by clarifying a comment made earlier. I too watched President Biden's address, as did many in our government. I believe that last night in addressing Congress, President Biden was referring to “buy American” not “buy America”, and specifically to his concern about one-off exemptions being given in a discretionary manner for certain contracts, which is not the topic of our study today. All members know this, and I'm sure our witnesses know this as well. We are looking at buy America and potential measures that may be imposed with respect to that. It's an important distinction.

I want to start by speaking to Mr. Simard as a Quebecker who is proud of the aluminum industry. It's certainly a source of pride for us all.

According to my information, Quebec produces about three million tonnes of aluminum each year. This amounts to about 60% of the entire North American production capacity. We often hear that Quebec's aluminum is the greenest in the world, and you have touched on this as well.

Have you ever spoken with your American counterparts about this issue to help them understand the environmental value of our aluminum?

[Jean Simard]

Thank you for the question.

First, I want to correct the figures. Canada produces 3.2 million tonnes of metal and Quebec produces about 2.8 million tonnes. About 90% of Canadian production is in Quebec. Year in and year out, we probably export around 80% to 90% of all Canadian production to the American market. I just said that to put things into perspective.

As an industry representative, I'm in contact with my American counterparts on a weekly basis. The American Aluminum Association represents American industrial interests. I'm pleased to confirm that the industry has been in perfect agreement for the past three, four or five years on trade issues. On both sides of the border, we readily acknowledge that we're part of an integrated continental chain and that we need the work done in both countries.

Before it serves its final purpose, the metal must cross the border between seven and 11 times. Before the metal manufactured and cast in Saguenay reaches its destination in a Ford 150, it can cross the border multiple times. This explains the complexity of our value chain and the importance of protecting its integrity. In our case, the Buy America measures, and not the Buy American Act, aren't likely to affect the transit of primary metal to the United States. As I said at the start, the Americans' need for aluminum imports is enormous.

Instead, the Buy America measures will affect products made from the metal, which could be used, for example, to manufacture AddÉnergie's charging stations. These stations are made from aluminum. How will this all come together in the final product? That remains to be seen.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you.

In response to an earlier question, you referred to our government's success in getting the aluminum tariffs removed. We did that as a team, as a country, together with our industry.

In your opinion, based on this success, would it be a good idea to join forces with representatives from all levels of government as well as our private sector partners to approach the United States as a team?

[Jean Simard]

Based on the past success of the CUSMA negotiations and the removal of tariffs, Canada's political and industrial involvement at various levels and in different jurisdictions on an ongoing basis certainly contributed to this outcome.

In the United States, power is both highly concentrated and very spread out. Influence is exercised at various levels and in different jurisdictions. The Canadian recipe under the Trudeau government has been to increase the number of discussions through various ministers, parliamentarians, senators, and so on. These relationships have made it possible to develop and keep up with issues while trying to mitigate differences. I think that this is the key to success. I strongly encourage you to keep this recipe because it has proven successful.

[The Chair, Liberal, Raj Saini]

Thank you, Ms. Bendayan.

We will now go to Mr. Savard-Tremblay.

Mr. Savard-Tremblay, you have the floor for the next six minutes.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you, Mr. Chair.

I want to acknowledge the witnesses.

As a member of Parliament from Quebec and the Bloc Québécois, which, as you know, focused heavily on the aluminum issue last year as part of the trade discussions leading up to CUSMA, I would have liked to ask you, Mr. Simard, how you wanted to get the United States to recognize green aluminum. However, you have already answered that question to some extent.

You clearly described the complexity of the value chain and the fact that the market is highly integrated, even multidimensional. Last year, the Bloc Québécois proposed a rules of origin formula that you and the Aluminium Association of Canada welcomed. Given the Buy America measures at the American border, is there a risk of dumping? Green aluminum is being compared to an infinitely more polluting aluminum that comes from China and passes through Mexico. Is this matter specifically addressed through the American recognition of green aluminum?

[Jean Simard]

This question has several components.

Countries are required to implement monitoring systems under the free trade agreement. Canada was the first country to do so. In March, the Americans implemented their own monitoring system for aluminum imports. Mexico is lagging behind, for a variety of reasons.

Canada and the United States must now team up to pressure Mexico to close this door, which could lead to fraudulent imports. In terms of the American administration recognizing the low carbon footprint of our metal, this will take some time and effort.

At this time, international financial markets are increasingly taking into account the carbon footprint of aluminum when calculating the cost of funding projects. If you're planning to buy or export low-carbon aluminum, or you want to expand your production capacity, your funding costs may be lower in the international markets. The carbon footprint is now part of the risk factors analyzed.

That said, when it comes to government procurement, we can't as a country force the United States to consider this concept if we fail to lead by example. We need the Canadian and provincial governments to look at the carbon footprint of the products in their procurement systems and then tell their partners to do the same. This is fundamental. Until we use our procurement rules to buy innovative low-carbon products and solutions, it's very difficult to lecture others.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

To achieve success in our trade relationship with the United States, which is under review today, we need to lead by example. This would require an in-depth reform of our own internal policies.

[Jean Simard]

Yes. It must be done gradually. It can't be done overnight, but it can be done. It has been done in other parts of the world.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you.

You also welcomed what we could tentatively call the agreement between the United States and Canada to “green” government activities. We undoubtedly thought that the fairly green nature of our aluminum would give us better access.

Would it be simpler if the criteria were stronger and more binding? Would this provide more opportunities for our aluminum, which is the most carbon neutral in the world, than for our potential competitors?

[Jean Simard]

Constraints are market devices that often have more detrimental effects than anything else. We saw this in the case of tariffs. When we use constraint mechanisms in markets that require a great deal of fluidity, everyone ends up paying the price. I can't say that I support this.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

However, it could be argued that environmental commitments without sufficient constraints are likely to turn into wishful thinking.

Don't get me wrong. I'm not saying that this is the case with the agreement between the United States and Canada. However, it seems that a minimum amount of constraint is needed to ensure that green technology is truly supported.

[Jean Simard]

Green technology is really—

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

I'm also talking about energy, of course.

[Jean Simard]

Why, at this time, is the ELYSIS technology about to be used in Canada and particularly in Quebec? Several factors come into play. The carbon market is taking shape and the price of carbon is increasing as time goes on. It's becoming necessary to use a disruptive technology. Governments must provide funding to the private sector to help it develop and implement this disruptive technology.

This means that, when large industrial sectors reach this limit, the private sector can't muster the required financial resources. Moreover, governments want to reduce carbon emissions. It's in their interest to help rather than hinder the development of these solutions.

[The Chair, Liberal, Raj Saini]

Thank you, Mr. Savard-Tremblay.

Mr. Cannings, you have six minutes, please.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you.

I'm going to turn to Mr. Kennedy, first.

You counselled us, I think, to not go after the buy America plan head-on, but when dealing with the United States, to talk about the integrated nature of our trade and how closely tied all those supply chains and value chains are.

Again, I'm from British Columbia and one of the big issues here is that softwood lumber disagreement. Here we have a situation where the United States clearly needs our lumber, but we have a very vocal and very powerful set of businesses in the United States producing lumber that seem to have had the ear of every government in the United States over the past 30 years.

Why, then, hasn't this argument worked with them? Here we have a case where we're paying illegal tariffs and lumber prices are going through the roof because demand is so high. Why hasn't that argument worked, and how can we perhaps reshape it when we're talking about buy America or a new softwood lumber agreement?

[Trevor Kennedy]

That's a very good question. It's in some ways similar to this problem. This is a long-term issue we've had with the United States, both in softwood lumber and on procurement policy. We have a fundamental disagreement.

I wouldn't try to represent the industry's view on what the preferred path forward is, but the more recent signals we're seeing from the U.S. is an interest in a new agreement between Canada and the U.S. I'm not sure how serious that is, but at least there have been comments from the new USTR in that space and to the extent that that would be helpful.

It has been a challenge, though. We always struggle to raise our issues. At the American level we're dealing with local constituencies and business groups. This came up in the steel and aluminum case with section 232 tariffs, where there were specific businesses that had a key interest. They were able to drive federal policy in a way that worked against, I would argue, American national interests.

We're seeing a very similar pattern with softwood lumber now. We know very clearly the National Association of Home Builders in the United States has been very vocal. I don't want to misquote the numbers, but adding $20,000 to $30,000 on top of a house at a time when housing prices are so high is absurd.

I'm hopeful we can reach a conclusion. That does seem to be one area where the administration has at least signalled an openness to dealing with Canada. Hopefully we can make progress.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you.

I'm going to turn now to Monsieur Simard.

It's a similar question in that in the previous round of witnesses we talked to Mr. Allan from AddÉnergie in Quebec about charging stations. We talked a bit about that value chain, the supply chain of the critical minerals and metals we need to electrify the energy systems in North America.

I'm wondering how much you would put on a strategy to create a North American critical metal and mineral supply chain so that we could make every component for batteries, electric motors and all those things.

He was using aluminum in his charging stations, for instance. Is that a strategy we could use to go to the United States and say that we have to take those value chains away from China—they dominate them now—and use our aluminum, copper, cobalt, lithium and graphite in a North American sense and really create a market within the continent? That would help both countries in this transition to a cleaner future.