Good afternoon, Mr. Chairman, and thank you very much. Good afternoon, members of the committee. Bonjour, mesdames et messieurs.
The Canadian Steel Producers Association welcomes this opportunity to add its voice to your deliberations. This is a much-needed and overdue inquiry. Far too many Canadians either take for granted the future of Canada's manufacturing sector or, worse, assume our economy can thrive without a competitive and diversified industrial base.
The steel industry has a direct stake in this issue, both in its own right as a major manufacturing sector and because our customer base includes other manufacturing and resource processing sectors. In turn, our industry is a major customer for many other sectors, from mining to transportation to engineering. Thus, our supply chain relationships extend in both directions.
The CSPA's member companies operate in five provinces, supporting customer needs in the industrial, commercial, residential, consumer, and public sectors across Canada.
With yearly sales of about 13.5 billion dollars, our members employ some 35,000 Canadians to produce 15 to 16 million metric tonnes of steel each year. More than a third of that production is exported, mainly to the US. In the end, however, Canada is a net importer of steel. Last year, we imported 9.3 million metric tonnes and exported 5.4 million tonnes.
The CSPA agrees with the challenges identified in the committee's interim report, notably the triple effect of rapid increases in the Canadian dollar, in energy prices, and in global competition. Our companies feel that every day. The industry itself has already made major strides, though the challenges remain serious.
Over the past several years our productivity performance has outstripped the manufacturing average considerably. There is an impressive rate of product innovation. Energy efficiency has been benchmarked at a very high level and we have reduced GHGs and pollutants significantly in absolute as well as intensity terms.
Future progress in all these areas depends on investment and reinvestment in plant and equipment, innovation, and people. It is under-appreciated, in our view, that globalization also means competing for investment as well as for markets. To win needed investment capital, whether that be among countries or within global enterprises, Canada simply needs to offer the conditions to compete against other investment options.
Consequently, the CSPA endorses the key investment measures that have been proposed already by several manufacturing industries to this committee. First, a two-year writeoff for investment in new productive machinery and equipment would accelerate capital stock turnover, leading to improved cost structures and productivity, energy efficiency, and environmental gains. Second is a further reduction in the corporate tax rate to 17% within five to six years. Third, improvements in the SR and ED system would enhance manufacturing innovation performance. And fourth is a tax credit for employer-financed workforce training to strengthen productivity of the existing workforce. This could take the form, for example, of a credit against EI premiums paid by employers.
I'm aware that this committee has been well briefed already on these issues, and you have also considered other issues important to us, including the entire question of energy pricing, availability and reliability, and the need for more rapid development of new and alternative energy sources. We could further discuss the broadly accepted need for improved border infrastructure and processes. Rather than repeat these points in detail, however, l thought I would speak to some topics that have received less attention up to this point.
The first is international trade, and in particular the rapid industrialization of countries such as China and India. For Canada, this is a two-sided coin. Clearly there is a rapidly growing opportunity in these markets, and we agree that Canada needs to pursue them more aggressively. The other side of the coin, however, is the deliberate policy of these countries to develop what they consider critical industries such as steel through direct and indirect subsidies, market protection, and other measures that support their export growth.
A less evident impact on our manufacturing base is the indirect subsidization of exports of steel-containing goods, such as appliances and equipment. These products displace domestic production in North America, both for these sectors and for supplier industries like our own.
China's steel industry is key in this regard. Even with double-digit internal growth, it has rapidly become a major net exporter of steel. This has been developed under a lengthy set of government measures to expand capacity and subsidize exports. The rapid build-up of excess capacity in China and other emerging economies, which invariably view steel as a strategic sector, will result inevitably in market distortions in Canada and elsewhere. These volumes of excess capacity, I would point out, are growing very substantially, as we speak.
Let me be clear, however, that we are not here to propose new forms of trade protection, nor do we seek production subsidies. We do, however, recommend that this committee recognize the importance of applying existing trade rules when unfair trade distorts markets for Canadian manufacturing. Better still would be to address these practices before bigger problems and trade frictions develop.
A second theme, quite different now, is to recognize and build on domestic industrial clusters and supply chain relationships. Although globalization has stretched supply chains geographically, our domestic competitiveness can be strengthened by local or regional clusters of related industries and infrastructure.
Industry sector clusters include suppliers and key customers. They create a broader pool for developing and retaining skilled workforces. They are transportation efficient and they collaborate to develop new technologies, products, and processes. Therefore, we should look for competitive, pragmatic ways to strengthen our industrial clusters within Canada and our domestic industrial and technological linkages. One such opportunity is through research infrastructure. Later today, you will hear the impressive story of AUTO21 when Dr. Frise appears before you.
An important opportunity for the steel industry is the move of the CANMET labs of Natural Resources Canada to Hamilton. This has the opportunity to bring together industry, university, and government technology capabilities to create new Canadian excellence in the areas of materials science and metallurgy.
A third topic I wish to cover is a well-trained adaptable workforce to meet the demanding needs of 21st century manufacturing. First, human resources programs, whether federal or provincial, could focus more directly on the advanced technical skills and sophisticated trades that will be in short supply. Second, as proposed earlier, a tax-based incentive for industrial training would stimulate continuous learning and skills upgrading of the existing workforce.
Third, action is needed at an earlier stage. Too many educators and students have an outdated image of manufacturing. Governments and industry need to work together with them to promote the attractiveness of manufacturing as a career choice for tomorrow's workforce, and we'd certainly be pleased if this committee recommended such actions take place.
Finally, there is the theme of how best to knit all these factors together in support of Canada's medium- and longer-term manufacturing interests. In a nutshell, the development of partnership mechanisms bring together key stakeholders to identify what can be achieved, what actions are needed, and what can improve the prospects for Canadian industrial success.
Industry sector partnerships can take many different forms. However structured, they offer a unique opportunity for Canada to take internal action as a basis for competing globally. Canada has a unique ability to work in this manner, and that can work to our competitive advantage.
The steel sector has been particularly active in this regard. For many years, we have worked with organized labour in the Canadian Steel Trades and Employment Council, which is now developing proposals related to skill needs for the industry. We have an aging workforce in a lot of industry sectors; over 50% of it is over 45.
Internationally, the NAFTA governments and their steel industries have formed the North American Steel Trade Committee, and under the security and prosperity partnership initiatives, we have developed a North American steel strategy, which the three governments have approved.
More recently, the CSPA, together with the federal and provincial governments, established the Canadian Steel Partnership Council, of which Mr. Sampson is the director. The CSPC includes high-level representatives of our governments, our customers, our suppliers, our workers, and academia. The next phase of this process will be to develop a shared long-term vision and initiatives on which stakeholders can act jointly to continue to advance the steel and steel-related industries in Canada.
Mr. Chairman, this concludes my opening remarks. As I said, I undertook to cover the areas I thought were getting less attention than some others. We thank the committee for its attention to our advice, and we look forward to the remainder of our discussion with you today.
