Finance Committee on June 12th, 2019

[The Chair, Liberal, Wayne Easter]

We shall call the meeting to order. Today we'll be hearing from witnesses on Bill C-101, An Act to amend the Customs Tariff and the Canadian International Trade Tribunal Act.

We have a couple of witnesses by teleconference. From Bunch Welding Ltd, we have Chad Bunch in Calgary. We have David McHattie with Tenaris in Vancouver.

We have three groups of witnesses here in person as well. I want to thank each and every one of the witnesses who came today on extremely short notice for an extremely hasty bill. We really appreciate the effort you folks made, either to come or to appear via teleconference. There are a number of others who I know wanted to appear, and we weren't able to make the connection.

We'll start with the Canadian Automobile Dealers Association. We have Mr. White, President and CEO; and Mr. Dicko, Chief Economist.

[John White, President and Chief Executive Officer, Canadian Automobile Dealers Association]

Thank you very much.

My name is John White, President and CEO of the Canadian Automobile Dealers Association. You've already met my colleague Oumar, who is our Chief Economist.

I would like to say, on behalf of the Canadian Automobile Dealers Association, or CADA, that I am very pleased to appear before this distinguished committee today.

CADA represents over 3,200 active small and medium-sized businesses. Our members employ close to 160,000 Canadians around the country. Our members contribute over $115 billion a year to the Canadian economy.

I would first like to congratulate the government on the recent agreement reached by Canada, Mexico and the United States for the removal of the punitive section 232 steel and aluminum tariffs and the subsequent countermeasures that were applied. These tariffs have disrupted the integrated North American supply chain and they've added unnecessary costs for businesses and consumers. The automobile industry has been particularly affected, with steel and aluminum being major inputs into vehicle production.

A number of auto manufacturers have already been on record stating that these tariffs have increased their costs, and for the most part, they've absorbed them. However, some have stated publicly that they have been forced to pass on cost increases and price increases to consumers and to dealers. Needless to say, last month’s agreement to lift these tariffs by the three countries is good for our highly integrated economies, consumers and dealers.

We appreciate the work of the Prime Minister, the Prime Minister’s Office, Minister Freeland and Minister Bains in ensuring that Canada’s auto sector would be protected and supported throughout the entire renegotiation process. I'd like to also thank them for initiating the steps to ratify CUSMA days after the steel and aluminum tariffs agreement was reached.

We also want to highlight the all-in Team Canada approach. We saw premiers, opposition MPs, former party leaders and prime ministers, along with members of the Canadian industry, reaching out to their American counterparts to reinforce the special trading relationship that we enjoy between Canada and the U.S. None of Canada’s success over the last year would have been possible without everyone's collective efforts.

Today, we are here to offer our comments in support of Bill C-101. This legislation will provide the government with the necessary flexibility to quickly react in response to abnormal trade patterns. In the case of steel and aluminum, the government will be able to take steps to protect the industry against foreign dumping. Steel and aluminum surges in Canada and the U.S. could trigger a new set of devastating tariffs, adding additional burden on the auto industry and North American supply chain, which could, in effect, threaten the ratification of CUSMA, and potentially have negative consequences and fallout once it is ratified.

Our franchised dealers want to ensure Canada is shielded from these surges and that additional disruption in the auto sector is avoided.

With an international trade space that is evolving fast and the kind of unprecedented, or should I say, unpredictable leadership coming from the U.S. administration, Canadian trade legislation should be flexible enough to provide lawmakers with the tools to rapidly take safeguard measures to support Canadian industries and workers.

Ultimately, our goal is to have the agreement ratified as soon as possible and to remove any obstacles that could slow its ratification.

I'd also like to add that our focus is to ensure the smooth and continued integration of the North American auto sector and that includes strong steel and aluminum sectors in Canada. Any measures that threaten to undermine this stability and integration will be bad for workers and the economy on both sides of the border. While we support Bill C-101, we caution that Canada take a hard look at any unintended consequences that this may have beyond the issue at hand.

Members of the committee, I'd like to thank you again for the opportunity to provide the perspective of the franchised new car dealers across the country on this important issue.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. White.

I'll turn to Mr. Bunch in Calgary.

Mr. Bunch and Mr. McHattie, you folks are at a bit of a disadvantage and probably have never been in front of a parliamentary committee before. To give you a bit of the process, all the witnesses usually make a presentation about five minutes long or thereabouts. After we've heard from the witnesses, we will go to a rotation of members of Parliament who have questions for the witnesses.

With that bit of background, Mr. Bunch, the floor is yours. Welcome.

[Chad Bunch, Vice-President, Operations, Bunch Welding Ltd]

Thank you, Mr. Chair.

I appreciate this opportunity and thank the distinguished members for your time. My name is Chad Bunch and I'm a mechanical engineer by trade. I'm also the Vice-President, Operations, of our family-owned and operated business, Bunch Welding Ltd. We are located in Leslieville, Alberta, and have been operating since 1981.

We primarily service the energy sector by fabricating structural steel and pressure piping. We employ roughly 250 to 350 people directly, depending on the season, mostly tradespeople. Our payroll typically consists of around $20 million annually, with our third party expenses also being around $23 million annually and a growing proportion at each year to payroll, so we're spending more money on third party expenses than we would on payroll.

Every year we typically purchase around two million pounds of steel directly, and we handle double that in carbon steel piping on behalf of our clients. Year over year since 2017, we've seen steel prices increase upwards of 60% per year for some steel categories and, I would say, at least a minimum of 30% for all the other categories.

By my count, in the last year we've seen about eight competitors, running similar businesses with similar numbers, shut down due to increased expenses and lack of profitability in spite of there being sufficient work. We're hearing things like people saying it's just not worth it.

Although this increases market share for us, this has obviously been devastating for the local economy by shrinking the amount of money going into things like housing, restaurants and tertiary services like massage therapists, etc.

I heard testimony yesterday that used the words “flexibility” and “process”. I understand that flexibility is required to add and remove tariffs as required. However, in the private sector flexibility translates to volatility, and volatility leads to drastic price swings, which are terrible for planning. Currently, there are no good legal mechanisms for small businesses like our own to pass the costs of tariffs on to the end users, unless it is expressly stated in contracts, which isn't always the case.

We're also usually outmatched when it comes to legal teams that our clients have, and our contracts are structured to protect them and obviously not us.

Regardless, our clients require cost certainty to determine whether projects are viable and make sense to proceed. This is impossible to do with the volatility in steel pricing, and in my view it's a significant impediment to whether investors decide to proceed with projects that our economy so desperately needs.

As a former federal public servant who worked in a quasi-judicial organization, I deeply respect our government employees and the work they do, but I also fully realize that government process is not fast and it's not easy, and when governments say words like “flexible” and “process” it scares me.

Unfortunately, it's just not practical for small businesses like our own to participate in processes, as we are often consumed with day-to-day operations of business and don't have the time and resources to commit to things that might seemingly be simple. It's because of this that small businesses don't get a voice at the table and, in my view, share a disproportionate amount of the burden from these changes.

I appreciate the difficulty that we Canadians are experiencing in the volatile world, and I recognize how profound and difficult these decisions are that you are required to make on behalf of all Canadians. I only respectfully ask that you please keep in mind small businesses and communities and the drastic effects of this flexible decision-making when you do it.

I appreciate your time. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Bunch.

We'll turn to the Canadian Steel Producers Association, Ms. Cobden, president. Welcome.

[Catherine Cobden, President, Canadian Steel Producers Association]

Good afternoon, Mr. Chair, members of the committee and fellow panellists. I appreciate the opportunity to be here.

My name is Catherine Cobden. I'm president of the Canadian Steel Producers Association. I'm here today representing our member companies, who are engaged in the manufacture of steel in five provinces across this country—Alberta, Saskatchewan, Manitoba, Ontario and Quebec. Our members employ 23,000 people directly and support 100,000 jobs indirectly. I'm pleased to be joined today by David McHattie, a member of our association. He will be providing additional remarks that build off the comments I'm about to make on behalf of the sector.

Thank you for the opportunity today to discuss Bill C-101 and the importance to the steel sector of its quick passage. It is critically important that this gets moved into Canadian law quickly. I think it's important context for your deliberations on the bill to understand that we are facing unprecedented global overcapacity of steel. Many countries, as you are probably aware, are taking trade actions that limit their domestic marketplace to the rest of the world. For example, you're aware of the section 232 measures in the United States. There are also safeguard measures in the EU, India, Egypt and Russia, to name a few. There are customs duties in Mexico, and the list goes on. As these actions have been put into place, the overall market is significantly exposed in Canada to high volumes and low-priced steel. For Canadian steel producers, this means that our domestic market continues to face grave risk. In the face of this context, our government must be ready to respond swiftly to the changes we're facing.

Thirty days ago or thereabouts, the federal government committed to taking strong action, using all legal avenues at its disposal to protect the steel industry and its workers from unfair trade practices. The CSPA welcomed this commitment. We intend to remain vigilant in ensuring that we act in response to these market changes. We believe Bill C-101 addresses a crucial gap in the existing legislation. It positions the government to act. By removing the two-year cooling-off period, the legislation is eliminating a significant barrier to responding and putting safeguards in place to address diversion in Canada. This tool, coupled with anticipated changes to enhance our overall trade remedy system, is necessary to continue to ensure a stable and robust Canadian steel market going forward.

The committee will be aware that safeguards stabilize the domestic marketplace and prevent surges of foreign imports. As we sit here today, the OECD estimates an overcapacity of around 540 million tonnes of steel. This is about 36 times the entire size of the Canadian market—36 times of overcapacity looking for a home. This is not fiction or fake news. This is the reality we face. We feel we need to have the tools—at your disposal—for implementation as soon as possible.

Our recent section 232 understanding between Canada and the U.S., which we're immensely grateful for, demonstrates the need for action and highlights that we see the world the same way as the U.S.—namely, that steel global overcapacity is a real and demonstrable threat and we must take steps to prevent surge and transshipment. While the U.S. section 232 tariffs were lifted on Canada, globally section 232 tariffs remain in place. There's a risk of millions of tonnes of offshore imports being diverted into our country. That risk continues to grow. By removing the waiting period, which is the intent of this legislation, this tool will be available to basically address this rapidly evolving circumstance.

I would like to address a few of the points we've heard in opposition to this bill before I cede my place on the floor. First, on the issue of western supply, I'd like to point out that Canadian steel producers are actively supplying western Canada. In the case of rebar, an example that is often cited, Canadian producers are on pace to account for a substantial amount of total market demand in B.C. this year. I would also like to point out that AltaSteel, Evraz, Gerdau and Tenaris, all members of CSPA, have steel plants in western Canada.

On the issue of regional exclusions, I direct your attention to the CITT consideration of these arguments in the past where they looked at this issue in great detail, and they determined it was not in the public interest to exempt regions from trade measures.

Finally, on the need for imports, Canadian producers have historically supplied 45% or thereabouts of the Canadian market, and we have substantial available capacity to supply more. The U.S. has historically supplied about 20% to 25% of the market, and imports have supplied the remainder. Safeguard measures, as you know, are meant to keep imports at historical levels, not prevent imports, but maintain them at a rational pace.

In closing the Canadian Steel Producers Association calls on all parties imperatively to support this bill and see it come into Canadian law as soon as possible. Our businesses, our workers and our communities are counting on it.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, Ms. Cobden.

We will now turn to Tenaris, Mr. McHattie in Vancouver. The floor is yours, welcome.

[David McHattie, Vice-President, Institutional Relations Canada, Tenaris]

Thank you, and thank you for accommodating me by telephone.

As a short introduction, Tenaris is a global steel company. We are also committed to local manufacturing, so in Canada we have around 1,000 employees in normal times. We have operations in Calgary, Edmonton and Sault Ste. Marie. We are part of the supply chain serving Canada's energy sector.

We support Bill C-101, and we do that from the perspective of a user and a manufacturer of steel and a supplier to a Canadian market that understands and recognizes the global implications of overcapacity. We felt them here in Canada.

We are a manufacturer, and we believe that's an important value for the Canadian economy. Why do we support this well-thought-out bill? Our objective, and I think a sound objective, is for the Canadian steel sector to be free from distortions based on rapid changes in trade flows, be those rapid changes as a result of dumping or even undumped goods that are changes of flows due to government causes or others.

It's an important tool, and it's just a tool, to limit trade exposure to these changes in trade flows. It's also an important part of a broader policy commitment to defend Canadian jobs, and that broader commitment includes the April 26 announcement by the Minister of Finance of a working group, which we also support, and we would like to see the rapid implementation of those recommendations. It's also consistent with Canada's NAFTA position, with Canada, the United States and Mexico competing against the world.

Tenaris is a global company. We have operations in all three countries, and we believe it's important that NAFTA competes as an integrated economy.

Our view is that there's no downside to this legislation. It is a prospective tool to be put into the tool kit to be available to be used when warranted. This tool is there at the finance minister's discretion in case we again see rapid changes in trade flows.

In short, as a reminder, it is a safeguard in our view, only to limit distortions of trade flows. It limited increases from the level of a historical standard. It did not limit imports at all. Any changes in price that any subsectors would have felt were likely as attributable more to global implications as they were to specific actions in Canada.

For these reasons we support this legislation 100% and would like to commend the Canadian government for all its actions over the last five years—which includes more than one political party—that have been working towards having a Canadian market free from trade distortions.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thanks very much, Mr. McHattie.

To round out our panel with the United Steelworkers, we have Mr. Neumann and Mr. Logie. Welcome.

[Ken Neumann, National Director for Canada, National Office, United Steelworkers]

Thank you very much, Mr. Chair.

My name is Ken Neumann. I am the National Director for the United Steelworkers in Canada. With me is Craig Logie, our trade counsel.

Thank you, all, for allowing me, on behalf of our members in the steel and aluminum industry, to address this committee to discuss Bill C-101.

As you know, the steelworkers' union has been at the forefront in advocating for strengthened trade measures to protect the domestic steel industry. At least 23,000 workers in Canada are directly employed in the steel industry, with another 100,000 indirectly employed. The United Steelworkers is by far the largest union in the steel and aluminum sector.

We are especially concerned for our members working in industries that are threatened by import surges, particularly as much of the world closes or restricts its steel markets. We support Bill C-101, but would also like to see concrete measures in place to protect Canadian steel markets and their workers.

This last year has been particularly difficult for our members in the Canadian steel industry. Over the last eight months or so we have seen over 700 temporary and permanent layoffs in communities from Calgary to Sault Ste. Marie; Hawkesbury, Ontario; and Montreal.

Moreover, the uncertainty created by the current steel trade situation has severely curtailed the industry's willingness to invest in Canadian steel facilities.

As we speak today, our steel sector and workers are still at risk from predatory practices of foreign producers who flout fair trade rules and who are now shut out of other markets.

It is critical that the federal government impose measures to stabilize our market and defend our national interests. As it is, the Canadian steel industry is vulnerable. While the U.S., Mexico and Europe have taken strong actions to defend their steel industry, the steelworkers have worked tirelessly to ensure that the illegal U.S. tariffs on Canadian steel and aluminum products were removed and that they not be replaced with a quota. We are pleased that they have finally been removed.

However, the agreement to remove the tariffs included provisions stating that the U.S. has the ability to reimpose tariffs should there be a surge in imports into Canada. Amendments to the Customs Tariff that would allow Canada to protect its market from the threat of import surges must not by symbolic. It is important that amended power under Bill C-101 be used to impose concrete measures to protect Canadian steel markets and steelworkers.

In the period during the initial imposition of U.S. section 232 tariffs on much of the world, Canada experienced a surge in the imports from non-NAFTA countries requiring temporary safeguards on seven steel products.

Just as an example, overall imports of steel into Canada surged by more than 140% from some countries in the aftermath of the section 232 tariffs. The provisional safeguards imposed last October were working to stabilize the steel market during this turbulent time.

With our ability to participate in trade cases before the Canadian International Trade Tribunal, the steelworkers were heavily involved in this year's hearings related to permanent safeguards on seven steel products. Our members produce six of the seven products that were considered in those hearings: rebar, energy tubular, hot-rolled sheet, heavy plate, wire rod and pre-painted. We were disappointed with the recommendations of the CITT, with the Department of Finance's decision not to extend the safeguards on five of the products.

Our concern is that this decision puts our members at risk should there be a surge in imports from countries seeking to avoid tariffs in the United States, or that have met their quotas in European markets. The U.S. maintains its 25% tariff on most of the world. Earlier this year, in February, the European Union announced that its provisional safeguard measures, tariff rate quotas, on 26 steel products would become permanent and should remain in place for three years.

As I have stated, it is our view that Canada cannot continue to be one of the few countries in the world that allows foreign steel to flood into its markets. The federal government must protect producers and workers; it's as simple as that.

Bill C-101 is a good first step, and we urge Parliament and the Senate to pass this legislation as quickly as possible, but we also add that the government's action must go further to ensure the stability of the Canadian steel market.

Further steps must be taken, including the reimposition of safeguard measures on five products that had been subject to the safeguard measures before April.

Thank you again for this opportunity to address the committee. I look forward to any questions you may have.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Neumann.

We'll go now to seven-minute rounds. We'll start with Mr. Fragiskatos.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for appearing, especially on short notice. We have admittedly a very unique situation and a unique bill to address that situation.

Ms. Cobden, I want to begin by asking you about just that. How abnormal is this situation with these trade practices that have developed in recent years? Can you compare it with a previous time in the past, or is this really quite unique?

[Catherine Cobden]

I think we would describe these times as rather unprecedented. This is the feeling of the CSPA membership. It's why we are so seized with the tool box getting expanded. Frankly, flexibility does not in our case mean uncertainty, as a previous witness had identified. For us it actually means certainty, because we know that we have the tool at our disposal with these imports surging—and they will surge.

To Ken's point, I'd like to add that we must be prepared to use them. I'm glad to point out that these are very uncertain times, so be ready.

[The Chair, Liberal, Wayne Easter]

Can I just interrupt for a second, Peter?

I can see the other witnesses here—they can put up a hand if they want to add anything—but I can't see you, Mr. Bunch or Mr. McHattie. If you have something you want to add in the discussion at any point, you'll just have to interrupt.

Mr. Fragiskatos.

[Peter Fragiskatos, Liberal, London North Centre, ON]

No problem.

Thank you very much, Ms. Cobden. I was quite interested in the point you made about western Canada, and I'm wondering if you could go over that once again. As well, can you tell us more about the CITT finding when it comes to exemptions for particular regions? I think that's an important point.

[Catherine Cobden]

The first point I was trying to make was that we have suppliers who serve the west. The Canadian steel producers, all of them, are prepared, and have been serving the west, but there are also some specific facilities that are based in the west. Sometimes I worry that we think of the steel sector as Hamilton when in fact it's right across—as I described it, from Alberta to Quebec.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Yes. It's not just the Soo and Hamilton, as you said.

[Catherine Cobden]

Yes, right, the Soo as well; sorry, Dave.

[David McHattie]

Perhaps I could interrupt there.

We are a consumer when it comes to inputs as part of our manufacturing process in Calgary. The steel we use in Calgary is manufactured in Hamilton and in Sault Ste. Marie. It's further evidence that steel producers are reaching out across the country with their products.

[Catherine Cobden]

To further elaborate on my answer, Canada and the U.S. can serve this market in the western part of our country, as previously mentioned. In fact, I'm really pleased to report that with regard to the Canadian market share, I can give you an example on a topic that keeps getting brought up, which is rebar in the west. I'm really pleased to report that our market share in terms of our shipments of rebar—I think this is a B.C. figure in particular—grew by 13% over last year.

That's just one example, but it's a proof point that we are serving the west and we're growing our business in the west.

[Peter Fragiskatos, Liberal, London North Centre, ON]

It's encouraging. Thank you for restating that. I think it's very important for the record to reflect that we hear different narratives. You're from the sector working on these issues, so thank you for bringing the evidence to the table today.

Mr. White, thank you very much for your presentation. You talked about the importance of the integration of the auto sector. You also talked about unintended consequences if we don't keep our eye on that, on the importance of an integrated auto sector. Can you go into some specifics on which unintended consequences you fear and on which unintended consequences you're worried about that we should know about specifically and keep in mind as a committee?

[John White]

There are two things. First of all, if this bill does not pass, what could happen is that it would be one other reason for our friends in the south to not ratify the agreement. What we've seen is that the Americans have not been shy in terms of imposing tariffs and doing things rather quickly. From there, with the countermeasures that we have adopted, or that we adopted in the past, there were also indications that this could further lead, if the dispute continued, to the imposition of tariffs on cars and trucks in addition. You have a trickle-down effect.

Now, it's our understanding, from reading some of the material from the presentations from the various parties, that concerns were stated—again, I'm not an expert on the manufacturing part—about the fact that there could be repercussions elsewhere in the country. I think you've gone down that path with the west, and I think some statements were made to that effect by various political parties to be careful for that.

We're not experts in terms of drilling down into the manufacturing sector and into the sector of how steel is produced around the country and the effects on B.C. versus Alberta versus the east. We're simply saying that as you go forward and move this, you need to be careful, in whatever it is you do, that there are not consequences that could harm those businesses locally. I think I've heard you go down that path, and I think I've heard that this has been appeased to a certain perspective.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I appreciate that. While political parties will certainly have differences between them, I think, or I would hope, we are united in our support for the steel sector; certainly on this side we are. I extend to my colleagues the wish that we work together expeditiously in a non-partisan way to pass legislation that responds to the need for flexibility that you pointed out, Mr. White, at the outset of the presentation you gave.

With that, Mr. Chair, thank you very much.

[The Chair, Liberal, Wayne Easter]

We'll turn to Mr. Allison.

[Dean Allison, Conservative, Niagara West, ON]

Thank you, Mr. Chair.

To our witnesses, I'll reiterate what the chair said. Thank you for coming on such, such short notice.

Mr. Neumann, perhaps I'll start with you just in terms of the thought process here. Why do you think CITT didn't support all the other requests that were made—only two? I'd be curious to hear your thoughts or those of anyone else who wants to answer. Was it a timing issue? As I said, they came back and said, listen, two for sure we need to deal with, but as for the other five, no. Why was that? Was it a timing issue? I know that sometimes in the cycle that might be one of the issues.

To hitchhike on that question, Mr. Neumann, you talked about meaningful surges and stuff. I just want to make sure I understand; it seems we've sort of lost our ability to slap back any kind of duties on this in case there's an issue. Because the U.S. can put the duties on, I think what I was hearing you say was let's make sure we don't give them a reason to slap additional duties on. Does that concern you guys around investment and certainty here in Canada if the U.S. can say, hey, listen...? I'm not sure what a meaningful surge would be and who would determine that; maybe the U.S. We're not always sure, when Mr. Trump does what he does, that we understand why or how, etc. I would maybe just get your thoughts around that.

I have more questions, but I'll probably have to ask them in my second round. Perhaps we could start with those two questions initially.