Evidence of meeting #64 for Foreign Affairs and International Development in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was steel.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Joseph Galimberti  President, Canadian Steel Producers Association
Mathew Wilson  Senior Vice-President, Canadian Manufacturers & Exporters
Wendy Zatylny  President, Association of Canadian Port Authorities

8:45 a.m.

Liberal

The Chair (Hon. Robert Nault (Kenora, Lib.)) Liberal Bob Nault

Colleagues, we will get started this morning. Pursuant to Standing Order 108(2), we are studying United States and Canadian foreign policy. Before us today is the Canadian Steel Producers Association, and Joseph Galimberti, the president.

Did I pronounce that properly?

8:45 a.m.

Joseph Galimberti President, Canadian Steel Producers Association

Yes, that was good.

8:45 a.m.

Liberal

The Chair Liberal Bob Nault

We also have the Canadian Manufacturers & Exporters. Mathew Wilson is the senior vice-president.

Welcome to the committee, gentlemen. I'm pretty sure you guys are used to the process and how it works, so we'll give you an opportunity to make some opening comments. We have an hour, so we'll get into questions right after the presentations and rotate our way through them.

I don't know who has decided to start. I will leave it up to either one of you to get started, and we'll go from there.

8:45 a.m.

Mathew Wilson Senior Vice-President, Canadian Manufacturers & Exporters

Why don't I start? Is that okay?

8:45 a.m.

Liberal

The Chair Liberal Bob Nault

Sure, that sounds good. Go ahead.

8:45 a.m.

Senior Vice-President, Canadian Manufacturers & Exporters

Mathew Wilson

The reason is that I've seen Joseph's testimony and I think I'll be a bit more general and we'll play off to each other, but he'll key in on a few of the more specific elements that I'll mention in passing.

8:45 a.m.

Liberal

The Chair Liberal Bob Nault

That's perfect.

8:45 a.m.

Senior Vice-President, Canadian Manufacturers & Exporters

Mathew Wilson

Good morning, Mr. Chair and members of the committee.

Thank you for inviting me here to speak on behalf of Canada's 90,000 manufacturers and exporters, and our association's 2,500 direct members, to discuss Canada's relationship with the United States.

CME is Canada's largest industry and trade association, with offices in every province, and is the chair of the Canadian Manufacturing Coalition, which represents roughly 55 sectoral manufacturing associations. More than 85% of our members are small and medium-sized enterprises representing every industrial sector, every export sector, and all regions of the country.

Manufacturing is the single largest business sector in Canada. In 2016, manufacturing sales surpassed $600 billion for the third consecutive year, directly accounting for 11% of Canada's total economic output, while directly employing over 1.7 million Canadians in highly productive, value-added, high-paying jobs. With the base in the NAFTA region, manufacturers are also directly responsible for the majority of Canada's exports. In 2015 and 2016, manufactured goods reached nearly $350 billion in exports, an all-time high, accounting for almost 70% of all Canadian exports. Nearly 75% of those exports go directly to the United States.

Much of this trade is due to the deep integration of manufacturing operations across the NAFTA region, and in particular between Canada and the United States. This integration has created a unique relationship for our countries globally. We do not simply trade goods with each other—we build things together, innovate together, and compete with the world together.

Canada's relationship with the U.S., in most ways, is a model upon which all relationships, especially trade relationships, can be judged. It has helped increase the standard of living of all participants. It has strengthened industry by combining the talents and expertise of both markets, creating bigger markets at home and strengthening our combined competitiveness globally. No other relationship that Canada has can compare to the historical, current, or future importance of this one for our economy and our citizens.

Securing and expanding this relationship must remain the single most important priority for Canada in dealing with the new administration. While there are many uncertainties in this regard moving forward—not the least of which are potential border taxes, increased protectionism such as Buy American, and NAFTA renegotiation—we also believe that there is great opportunity for Canada and for Canadian industry, if it is efficiently handled.

Since the signing of NAFTA nearly 25 years ago, the business world has changed dramatically. NAFTA itself created much more competitive and global industries and spawned almost unimaginable levels of integration and flows of people, services, and goods across our borders. China rose from almost nothing to an industrial powerhouse competing for customers, investment, and market share against Canadian and U.S. companies. New technologies have emerged that have reshaped the way we live and work. Almost none of this was contemplated when NAFTA was signed.

These changing realities are why CME has been working constructively with the federal government for years on avenues to improve that framework. Efforts like the border action plans of the 2000s and the Regulatory Cooperation Council and the Beyond the Border agreements of the 2010s were aimed directly at improving our common manufacturing platform, because modernization of the trade relationship between Canada and the U.S. was not an option.

Now that opening the agreement is a political reality, we should look for ways to cement improvements that support the economic base of NAFTA. To help prioritize this, the CME is surveying its members to identify priorities for modernization and improvement of the Canada-U.S. relationship. While our survey is ongoing, I am pleased to share with you an overview of the responses as they currently stand.

As a starting point, the overwhelming priority for Canadian industry is to maintain market access and uninterrupted supply chains with the U.S. While companies want improvements, they are also very concerned about a renegotiation that may lead to worse economic outcome through more restrictions, barriers, and protectionism on imports and exports of people, goods, and services.

On specific measures for improvement in the relationship, the priorities mainly stem from the deep level of integration and the volume and value of the trade. Improved customs processes to speed up border transactions and eliminating uncertainty through reduced red tape for both people and goods rank as the top priority. Following that, companies are looking to maintain effective dispute resolution processes, improve regulatory co-operation and alignment, and take much stronger coordinated trade action on the dumping of goods from other markets.

Many of these priorities are already included in the existing Canada-European Union economic and trade agreement framework and were being negotiated as part of the TPP. We believe they could create a framework for modernization of our trade relationship with the U.S.

At the same time, the relationship between Canada and the United States is fundamentally different from those represented by other trade agreements. We believe that if Canada can come to an agreement on these priority areas with other, largely new trading partners, we should be looking to go beyond the commitments with our NAFTA partners, and especially the U.S.—for example, expanding the RCC to implement a mutual recognition agreement on regulations or strengthened perimeter coordination of trade rules, such as illegal dumping.

In summary and conclusion, our economic relationship with the U.S. is paramount, and we must work aggressively to strengthen and grow integration while there is an opportunity. We don't simply trade goods with the U.S., but rather we build goods together and compete with the world together. And while there are significant uncertainties and concerns, we believe that with the right approach our integrated economies can be strengthened and increase global competitiveness to drive job creation and economic growth at home.

Thank you again for inviting me here today. I look forward to the discussion.

8:50 a.m.

Liberal

The Chair Liberal Bob Nault

Thank you, Mr. Wilson.

Mr. Galimberti, go ahead, please.

8:50 a.m.

President, Canadian Steel Producers Association

Joseph Galimberti

Good morning. Thank you to the honourable members for the opportunity to present today on behalf of the Canadian Steel Producers Association.

We represent Canada's $14 billion primary steel production industry. Our producers are integral to the automotive, energy, construction, and other vital industrial supply chains in Canada.

I would like to start my remarks today by providing some context in regard to the currently balanced and mutually beneficial nature of the Canada–U.S. relationship in steel. Canada and the U.S. enjoy a complementary trade relationship founded on the fair market principles embraced in both jurisdictions.

In 2016 more than 10 million tonnes of steel was traded between our two nations, with a market value of over $8.8 billion. These are U. S. dollars, by the way. Canada shipped $4.4 billion worth to the U.S and the U.S. producers shipped $4.45 billion worth to Canada. So it's extraordinarily balanced.

Steel continues to be a major export commodity from the United States into Canada, and supports significant economic activity and employment in America's steel sector. Last year 50% of U.S. steel exports came to Canada, which accounted for approximately 30% of Canada's domestic market. Additionally, significant volumes of raw inputs for Canadian steel production are sourced from U.S. suppliers. Approximately $1.5 billion of iron ore, metallurgical coal, scrap steel, zinc, and other metals were purchased by Canadian companies for processing into steel in 2016. Beyond the value of the commodities themselves—and I know that later today you will be hearing from the port authorities, who can speak to this as well—the economic activity and transportation associated with those raw materials contribute significantly to the economies of both countries.

Without question, American employment and industry are supported by the ability to access fairly traded Canadian-made steel, and any disruption to our well-established, heavily integrated, and mutually beneficial supply chains will create unintended economic consequences on both sides of the border.

Several steel producers maintain facilities and employment in both Canada and the United States, with their shared supporting additional investment and expansion. Integration also facilitates timely delivery of products, which meets complex customer requirements, allows for specialization in market segments, maintains appropriate economies of scale and, importantly, supports a common competitive defence against dumped and subsidized imports.

Mutually assisted defence against unfairly traded steel is critical in the Canada–U.S. context. As we have known for some time, dumped and subsidized steel—primarily from China—is justifiably the United States' top international trade irritant.

Global excess production in steel has now risen to nearly 700 million tonnes annually. The People's Republic of China, through a variety of state supports, by itself now maintains more than 425 million metric tonnes of the global surplus—that is almost 30 times the size of the entire Canadian steel market—despite declining demand in China. Simply put, that steel has to go somewhere.

The price deterioration and market instability associated with that illegal trade has contributed significantly to our industry's challenges. This is hurting North American families, and capacity utilization and employment are under threat throughout North America.

To that end, since 2003, NAFTA governments and the NAFTA steel industry have worked through the North American Steel Trade Committee to demonstrate our shared commitment to combatting market distortions in the steel sector, to further collaborating between our steel industries, and to preserving our fair and balanced trading relationship.

We have worked together within the NASTC to develop strong and coordinated positions on issues in multilateral settings of importance to steel, including the OECD steel committee and WTO rules negotiations. Moreover, we have used the NASTC to track developments in certain steel-producing countries for the purposes of identifying and addressing distortions in the global steel market. This is including the submission of joint comments on China's proposed changes to its steel industrial policies.

I mentioned the OECD steel committee. We're also active partners with the United States there and, through that forum, have supported the establishment of the G20 Global Forum on Steel Excess Capacity, from which we share an expectation that an eventual permanent reduction of excess capacity and government interference in the sector will follow in the near term.

However, until that time comes, we fully support appropriate domestic and multilateral action to address unfair trade. I would highlight, in that context, the recent establishment of a trilateral customs steel enforcement dialogue among Canada, the United States, and Mexico to facilitate coordinated compliance efforts and information sharing regarding the enforcement of anti-dumping and countervailing measures on steel products.

Despite all of our best efforts and collaboration, continual vigilance is required to make sure that Canada's steel industry is not negatively affected by sweeping U.S. action to defend the interests of its domestic producers. To that end, I would specifically note that it is essential that Canada secure national consideration in the Department of Commerce's ongoing section 232 national security investigation on imports of steel; in the department's process on the construction of pipelines using domestic steel and iron; and as regards the department's ongoing processes on the enforcement of current Buy American policies. In each instance, the Government of Canada should continue to rigorously defend the interests of Canadian steel producers and steelworkers to ensure that no adverse consequences result from direct action taken by the United States, and to make sure that our market is not unduly exposed to the diversion of foreign product that would result from U.S. action. Without positive outcomes on these three consequential investigations, the health of the Canadian steel industry is at risk and any potential benefits to industry that would result from a NAFTA modernization would be effectively neutralized.

In closing, I would again note that the Canada–U.S. relationship in steel is defined by mutual benefit and fairness. The United States, I would note, has not filed a trade complaint against Canada on its steel products since 2002. Preserving that relationship while collectively addressing damaging, unfair global trade in steel should be our shared focus.

Thank you very much for your time. I'm happy to take your questions.

9 a.m.

Liberal

The Chair Liberal Bob Nault

Thank you very much, Mr. Galimberti.

We're going to go to Mr. Allison to start off.

Dean.

9 a.m.

Conservative

Dean Allison Conservative Niagara West, ON

Thank you, gentlemen, for being here today.

My question is for you, Mr. Wilson. I've always appreciated what your organization does and some of the suggestions you've always made to all governments about how we could be more competitive. In Niagara we have probably about 1,000 manufacturers. Even though we got gutted, as everybody else did, and lost a lot of the big ones, the biggest challenge is that most of them have under 10 people; they're small shops.

My question is this. What do you see as our competitive advantage? Maybe another way to put it is how can we compete with the U.S.? What should we be doing and what are one or two policy items we could look at to make us more competitive? We have higher energy costs here in Ontario than there are in the States. In the States they have all kinds of incentives, locally and regionally, etc. How are we going to compete, or what could be our competitive advantage as we move forward in trying to grow those SMEs?

9 a.m.

Senior Vice-President, Canadian Manufacturers & Exporters

Mathew Wilson

First off, I'd say not just in the Niagara area but across the country one of our structural problems, frankly, in the industrial sector we have in Canada, despite the overall size of it, is that 90% of the companies across the country have fewer than 15 employees. They're really small, and so their ability to compete for investment, for market share, is really hampered by their own size. I know one thing that we're working aggressively on with the government today, and we have been for years, is competitiveness and helping companies scale up and grow. That's really critical. Whether that's for the U.S. market, the Mexican market, or beyond, that is really important.

There are a couple of key things here. Certainly the domestic competitiveness and the investment climate that we see within Canada are paramount to our members right now. We're looking at rising costs pretty much across the board, and not just in Ontario but across the entire country. In the meantime, if we look across the border into the U.S., there are massive corporate tax reforms coming through and regulatory reforms coming through that will dramatically decrease the cost of doing business.

There are two things I'd say. First, our advantage is people. We have our education system. While we complain about it and say it needs to be better—I think we all agree it needs to be better—it's still better than most. The talent that we turn out in Canada is a real advantage. It helps, especially as we're moving into a much more digital economy and advanced manufacturing technologies. It will be an advantage that, for small and large companies, is critical.

On the downside we need to make sure that our structure, the cost structure within Canada remains competitive so we can attract investment. It's very easy right now for companies of all sizes to move into the U.S., because that is the primary market for a lot of products. They're getting massive incentives, as you mentioned, at the state and local level, things that aren't available in Canada, and so we need to take a look at that.

One thing we're working on with the government now, for example—and it was announced in the budget—is a complete program review. It will look at all the investment supports mechanisms to make sure they are more competitive, especially for smaller-sized companies; to make sure they can get the supports they need; to make sure the government programs such as BDC and EDC and the crown corporations that are there are actually aligned and are supporting small businesses. Often, they're really not doing as much as they could be doing. That process and going through that will be really important.

The other piece of it that's really important is the promise of a tax review and tax competitiveness review. There's going to be a regulatory review coming along as well. All of those things that will happen this year in Canada, in lock-step with the U.S. reviews, will be really important, so that we don't lose sight of that competitiveness factor, and so that we do move along in a fashion that allows Canada to maintain an opportunity for attracting especially foreign investment but also domestic investment.

9 a.m.

Conservative

Dean Allison Conservative Niagara West, ON

I'm going to turn over the rest of my time to Mr. Kent.

9 a.m.

Conservative

Peter Kent Conservative Thornhill, ON

Thank you both for attending.

Mr. Galimberti, given your cautions about maintaining bilateral balance with the U.S. industry and your concern about the overproduction of Chinese steel, are you indirectly leading us to a suggestion that perhaps the Canada-China free trade agreement should be put on ice until completion of the renegotiation of NAFTA?

9 a.m.

President, Canadian Steel Producers Association

Joseph Galimberti

I think there's an inherent risk in elevating any kind of trade relationship beyond our relationship with the United States. The U.S. is going to be our primary trade partner. That is a reality. I don't know that there would be much wisdom in taking steps that would undermine that.

We're not opposed to a negotiation with China. What we would say is that we know the Chinese steel sector is massively state-owned, state-subsidized, and state-funded, and that they maintain tremendous overproduction. They do this as an employment and social program, and also as an economic strategy to bring manufacturing to China. We cannot enter this negotiation naively. Any negotiated free trade agreement should have benefits to Canada. We specifically believe there should be benefits to Canadian manufacturing: keep jobs here.

9:05 a.m.

Conservative

Peter Kent Conservative Thornhill, ON

What advice do you have for Canadian multinationals, or Canadians doing business abroad and purchasing steel? I'm thinking now of the stacks of rusting steel pipe in the United States for the XL pipeline, which was purchased at a very low price from India.

9:05 a.m.

President, Canadian Steel Producers Association

Joseph Galimberti

Canadian companies produce very high-quality steel. We do it fairly. Countries do not take trade actions against us. We are not dumping, and we are not subsidising.

I mentioned 2002, so it was a long time ago that there was a trade complaint out of the United States. We continue to work with customers to ensure that those relationships are preserved, and that when you order steel from a Canadian company you're going to receive it on time, it will be of the highest quality, and you're not going to be paying a duty or a tax that you didn't expect.

9:05 a.m.

Conservative

Peter Kent Conservative Thornhill, ON

Coming to the U.S. concerns about a Canada-China trade agreement being a back door for dumping, and your concern about the overproduction in China, is dumping as it exists today a matter of stiffening enforcement and inspection?

9:05 a.m.

President, Canadian Steel Producers Association

Joseph Galimberti

Yes.

The government has taken steps in consecutive budgets to strengthen our trade remedy framework. That was to allow for increased accuracy and speed in terms of investigation to give CBSA the tools they need to make sure they're properly assigning duties and have the ability to investigate circumvention schemes, which we think is important. Certainly more can be done from an investigation perspective. That's why we were happy to see the trilateral agreement between the U.S. and Mexico. We really feel that as fortress North America in this regard, we can benefit from it.

No free trade negotiation should negate, in any way, our ability to enforce fair trade. If you're talking about weakening our trade remedy system, that disrupts not only our trade relationship with the United States, but everyone else with whom we have a trade agreement. You cannot advance one country's priorities or negate your domestic ability.

9:05 a.m.

Liberal

The Chair Liberal Bob Nault

Thank you, Mr. Kent.

Mr. Fragiskatos, please.

9:05 a.m.

Liberal

Peter Fragiskatos Liberal London North Centre, ON

Thank you to both of you for being here today.

Mr. Wilson, on May 9, you appeared before the committee on international trade. You called NAFTA “a model for which all trade agreements should be judged”. Then you went on to comment that if it were to be renegotiated in some shape or form, there should be certain “measures for improvement”, as you put it, that Canada should seek to obtain. One of those was “reduced red tape for both people and goods”.

I wonder if you could give examples of current problems with red tape, and barriers that you would highlight as especially important impediments to trade as it exists now.

You also called for greater regulatory co-operation. I wonder if you could give a few examples of what you mean by that.

9:05 a.m.

Senior Vice-President, Canadian Manufacturers & Exporters

Mathew Wilson

Sure, I'd be happy to. Thanks for reading the testimony from the other committee.

9:05 a.m.

Liberal

Peter Fragiskatos Liberal London North Centre, ON

It's the cycle of life.

9:05 a.m.

Senior Vice-President, Canadian Manufacturers & Exporters

Mathew Wilson

Obviously, this is an important issue for us and for you as we work through things with the new administration and where NAFTA may go.

I have a couple of really specific examples, and maybe I'll give one on business professionals crossing the border. There are defined rules within NAFTA and within the trade relationship with the U.S., even within subagreements that Canada and the U.S. have on the movement of people and goods, that are aimed at facilitation. These go back, primarily, post 9/11 when a bunch of different agreements were put in place.

A really good example of one that we've never been able to get our head around and that doesn't really work that well is the movement of business professionals going back and forth. The specific example that I'll give will be around service and repair professionals.

As a pure Canadian example, machinery or equipment will often be bought from a U.S. supplier. As part of the agreement they will bring in people to install it, and then there will be a long-term service relationship to maintain that equipment. If something breaks down, the repair person needs to come into Canada because they're very often very specialized and trained only on one piece of equipment and they bring in the parts that come with it.

Under NAFTA rules and agreements with the U.S., those people should be able to enter Canada without any problem whatsoever. However, depending on the day that person crosses the border and which border crossing they might be crossing at, and which person might be asking them questions when they get to the border, they're often stopped and held for hours at a time and denied entry.

It's that type of problem. It's the uncertainty that comes with crossing the border. The excuse typically is that they're taking jobs away from Canadians. What ends up happening is that when that person can't get into the country to repair something, Canadians are losing jobs. It's that kind of thing.

We've also heard of a tit-for-tat type of problem, in which the U.S. is starting to increase its enforcement, asking for things like T4 slips when someone is crossing the border to prove that they're employed by a Canadian company. That requirement is not written anywhere, but a border guard decided that day to ask for these. The Canadians will reciprocate the next day when coming back. It's that kind of stuff that drives businesses crazy and really undermines the competitiveness of our intertwined economy. That's my example on that very specific issue.

On regulations, the RCC between Canada and the U.S. was a great step forward for us. The deal that was signed in 2011 was hugely supported by industry and, generally speaking, across governments, and we support it. It was really good in a lot of ways, but it also is weak in a lot of ways, because you're still relying on regulators to agree that their regulations should be merged with someone else's regulations. What ends up happening is that the two countries still regulate in tandem with one another. Sometimes they share data, and in some sectors like automotive, they've made really big leaps forward in areas like vehicle emissions, for example. In other areas there haven't been, so Canada will still regulate and make one small change over here without thinking much of it, and it will undermine the ability of a company to make one product and sell it in both markets.

What we think and mentioned here today and certainly mentioned before the trade committee is that we need to be looking beyond that, looking at something like a mutual recognition agreement of regulations. Then you're not relying anymore on regulators to come to agreement on what's aligned, but the political side of things can say that we trust each other's regulatory systems. We're going to allow each other to regulate. Canada can still regulate and the U.S. can still regulate, but we're going to accept U.S. regulations as domestic regulations, so you don't end up getting into these situations where products are banned from Canada simply because a regulator has a bad day one day. That is is happening today.

A lot of it comes back to the need for business certainty and to remove uncertainty as much as possible from the processes in regulatory approvals.