International Trade Committee on June 26th, 2018

[The Chair, Liberal, Mark Eyking]

Is it all right if Mr. Verwey jumps in?

[Bob Verwey]

I just want to make one comment.

I'm on the floor. I'm in the war zone. With regard to the statement that the consumer will pay the price, I'm saying they won't pay the price. The retail will stop. That's what I want to say: the retail will stop. I've been there before. It happened in our tourist business. It happened in our car business. It happened in our trailer business. When we had the decrease in our dollar, we had a 25% increase in our payments and, boom, our business stopped. That's what happened. The consumer will not pay the price. We'll lose money and the federal government will lose money. I write my tax dollars to you this month, and it's a lot of money that goes to the government, so you'll lose money too. The ripple effect is huge. That's all I want to say.

[The Chair, Liberal, Mark Eyking]

Thank you.

Mr. Sheehan, your time is up.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

I'll save my question for the next round.

[The Chair, Liberal, Mark Eyking]

That ends our first round.

I'm sorry for the late start, but we got through it and the witnesses all got their submissions done.

Thank you, folks, for coming.

This is huge, not only for your lives but for all the people you represent.

Thank you for coming.

Our committee is going to take your submissions very seriously.

We'll going to suspend for five minutes and then we'll get right to the next crew of witnesses.

[The Chair, Liberal, Mark Eyking]

Welcome back, everybody. We're into our second round on this very important topic. This is a special meeting that all parties pulled together in order to hear about the impacts of the tariffs that are being imposed by both countries, and the repercussions for the workers, manufacturers, and consumers.

Welcome, witnesses. We're very appreciative that you agreed to come before us. If it's your first time in front of our committee, try to keep your presentation to five minutes or less. After four and a half minutes, I'll hit the red light, and you'll know that you're coming to the end of your time and you can wrap up. We'll do the same for the MPs when their time is up.

Without further ado, we'll start off with the Canadian Labour Congress. We have with us Ms. Norgang and Mr. Rousseau.

Welcome, folks. You have the floor.

[Larry Rousseau, Executive Vice-President, Canadian Labour Congress]

Thank you, Mr. Chair.

I also would like to thank the members of the committee for having invited us to address them this morning.

On behalf of the 3 million members of the Canadian Labour Congress, I want to thank the committee for the opportunity to present our views on the impact of tariffs on Canadian businesses, workers and communities.

The CLC brings together Canada's national and international unions, along with the provincial and territorial federations of labour, and over 100 labour councils. Employees represented by affiliated unions of the CLC work in virtually all sectors of the Canadian economy and all occupations and in all regions of the country.

Canada's unions support the Canadian government's action to date against the unjustified and unwarranted American tariffs on steel and aluminum. Trump's aggressive trade provocations against Canada are a totally unjustified and unwarranted sanction against a fair trading ally. Canada's unions have asked the federal government to put together a rapid response working group with industry and worker representatives to develop a package to support workers, businesses, and communities.

The work of the rapid response working group would complement that of the federal steel and aluminum trade-monitoring committees, as well as any provincial responses.

As part of this joint work, we recommend that a comprehensive jobs impact assessment be completed to inform the ongoing development and deployment of industry and workplace assistance measures. We see three critical areas in which government action will be necessary.

First is the fact that Canadian producers will have temporarily lost U.S.-based customers. We encourage the federal government to explore a wide range of possible industry supports, such as loan guarantees for small and medium-size businesses to help them weather the storm and policy measures that prioritize the use of Canadian-made steel and aluminum for energy projects within Canada. This would enable the government to meet its stated aim of developing Canada's energy resources in an environmentally responsible way.

Second, Canadian producers and manufacturers will now be competing with the excess supply of steel and aluminum diverted from the U.S. market. Elements of a package to address this could include action by the Canadian International Trade Tribunal and Canada Border Services Agency to address any trade diversion caused by U.S. measures, as well as additional resources devoted to border agents and inspections to ensure that the Canadian market isn't flooded with dumped products. We welcome the government's recent introduction of regulatory changes related to anti-circumvention investigations, scope proceedings, and price distortions, as well as recently announced funding for the new officers. We look forward to working with the government on the implementation of these changes.

Finally, the steel sector supports 22,000 direct jobs across Canada. The aluminum sector supports nearly 10,000 direct jobs, mainly in British Columbia and Quebec, with supply chains in related industries affecting more than 100,000 additional workers, as you heard earlier. Worker support packages should keep in mind that the impact extends beyond directly employed workers to workers in related industries and in small communities. We recommend building on the package developed for the softwood lumber industry, as my colleague said earlier; working with the provinces to provide additional investments for training supports to allow affected workers to upskill, with income supports; extending the EI duration for workers in affected regions; and extending EI work-sharing and adjustment programs that help to minimize job losses when there is a temporary slowdown in business activity so that employers may continue to operate.

Finally, we appreciate the committee taking the time to hear our views on this important issue. We look forward to working with the federal government to ensure that we can mitigate job losses and community hardship in the face of this serious economic threat.

Merci.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We'll move to Mr. Galimberti, the president of the Canadian Steel Producers Association.

Welcome, sir. You have the floor.

[Joseph Galimberti, President, Canadian Steel Producers Association]

Good morning and thank you to the honourable members of the committee for the opportunity to present as this committee undertakes its study on the impacts of the Government of Canada's countermeasure actions against the United States in response to tariffs on Canadian steel and aluminum products.

This is, I believe, my fourth time in front of this committee this year, so thank you very much for your attention to this matter. If I understand parliamentary procedure correctly, I think I get my next visit for free, so I'm looking forward to that.

[Some hon. members]

Oh, oh!

[The Chair, Liberal, Mark Eyking]

You can stay around for free pizza later.

[Joseph Galimberti]

The CSPA is, of course, the national voice of Canada's $15 billion primary steel production industry. As I mentioned previously, direct employment from steel is approximately 23,000 Canadians supporting another 100,000 indirect jobs.

On June 1, 2018, the United States imposed punitive tariffs on the imports of certain steel and aluminum products from Canada, at rates of 25% and 10% respectively. These are unilateral and illegal trade actions by the United States, which pose an unacceptable and immediate threat to investment and employment in Canadian steel manufacturing. Our member companies strongly support the Government of Canada's announced intention to impose tariffs on imports of steel, aluminum, and other products from the United States, representing the total value of 2017 Canadian exports affected by the U.S. measures. We believe this to be an appropriate and proportional response to the U.S. administration's actions, and an essential step in supporting Canadian steel companies and their workers.

In that regard, it is the consensus position of the Canadian Steel Producers Association that items included in table 1, published in the notice of intent, should be subject to tariffs at the rate of 25% when those tariffs take effect. Only in verifiable instances, either where no Canadian production exists or where there is a narrow requirement for the cross-border transfer of a specialized product within the same steel-producing company to support Canadian operations, should initial omissions to that list be considered. Once it is implemented, if it is determined through a prescribed exclusion process that a given product cannot be reasonably sourced either domestically or from alternative international jurisdictions, only then should relief for exemptions from the applied tariffs be contemplated. Any such process should be conducted transparently and in full consultation with Canadian Steel Producers.

I would note that the U.S. process for gaining an exclusion from the section 232 tariffs is rigorously public by its nature and predicated on the provision of a full, factual description of the specified product, its properties, and the quantities in question, and also allows for any company or individual in the United States to file objections to the exclusionary request within 30 days of those being posted on the federal registrar's website. They are quite ambitiously public about the process.

Canada's steel producers have no interest in seeing valid exemption requests denied and do not want important economic activities disrupted, but where Canadian steel products are subject to tariffs entering the United States, equivalent tariffs should be imposed on U.S. steel products entering Canada. To take any lesser action would both undermine the notion of a truly reciprocal response and fail to meet the Government of Canada's commitment of full support for steel and aluminum workers.

We understand that the unfortunate reality of tariffs implies a potential cost escalation and/or the adjustment of established supply chains for steel consumers. We have worked and will continue to work tirelessly to demonstrate to the U.S. administration the need for a full exclusion for Canada from the section 232 tariffs in order to maintain mutually beneficial trade between our two countries and to preserve critical integrated supply chains. We would encourage implicated steel consumers with Canadian operations to undertake similar advocacy efforts in the United States, furthering the notion of our combined benefit from free and open trade in North America.

Through a true Team Canada approach, we should hope not only to convince the United States to exempt Canada from tariffs on steel and aluminum but also to discourage the U.S. from moving forward with section 232 tariffs on the imports of autos and automotive parts from Canada. The CSPA also believes that steel producers from the United States who have championed actions against Canada in the context of section 232 tariffs should not be allowed to gain any advantage associated with exemptions from Canada's responsive actions. Clearly, a group of foreign companies that have consistently chosen to work against Canada's interests should not be granted exemptions of any kind from responsive measures.

The Canadian steel industry finds itself today at a significant competitive disadvantage in the United States because of these tariffs. Being artificially excluded from by far our largest export market while at the same time working with the government on appropriate measures, like a safeguard action to contend with a potential flood of global steel displaced from the U.S., will necessitate an increased focus on the domestic market to ensure we can keep selling our products and employing Canadians. Exemptions or exclusions from table 1 imply not just continued access for American producers but unfair and damaging access for American producers sheltered from competition in their home market by the section 232 tariffs.

[The Chair, Liberal, Mark Eyking]

Excuse me, sir. Can you wrap up?

[Joseph Galimberti]

Yes. I need two seconds.

This is unacceptable. Canada's steel producers already feel the impacts of these unacceptable U.S. tariffs imposed under the absurd pretext of national security; we recognize that our customers do as well. We are willing to work co-operatively to ensure that sufficient steel supply is available in Canada to support vital industrial building and manufacturing applications. Where reasonable alternative means of supply cannot be found domestically or from non-U.S. jurisdictions, we are, of course, prepared to collaborate with the implicated steel consumers and the government to determine if an exemption is appropriate. We cannot, however, support exemptions from the Government of Canada's countermeasures list where comparable product is made or is otherwise reasonably available in Canada.

Thank you again for your time. I'm happy to answer any questions.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to move over to Mr. Winkler.

He is president and chief executive officer of Evraz North America.

Go ahead, sir. You have the floor.

[Conrad Winkler, President and Chief Executive Officer, North America, Evraz]

Good morning, honourable members of the committee.

Thank you for the opportunity to speak today regarding the Canadian steel industry in relation to the section 232 tariff.

Evraz is North America's leading producer of large-diameter line pipe, employing over 2,100 people in Saskatchewan and Alberta. We recently completed a $270-million investment in Regina on leading-edge steel-making and pipeline technology for quality and safety. We're in the midst of a $30-million investment to produce high-strength casing and tubing in Red Deer. We also employ over 1,500 people in the United States and are the largest producer of rail steel in North America as well as the only producer of plate in western North America.

We are extremely integrated between the United States and Canada, sending rail steel from Colorado to CN and CP, sending steel from the U.S. for pipe production in Canada, and, most significantly, producing pipeline pipes in Canada for Canadian and U.S. operators. In fact, we also send some plate from Portland up to Camrose, which subsequently goes into U.S. and Canadian pipelines.

The U.S. measures have a tremendous and immediate impact on us and our U.S. customers. Our large-diameter pipe business is very project-oriented. Section 232 tariffs could delay U.S. projects and cost U.S. construction and energy jobs. For our own operations, they have caused a reluctance to ship large volumes of pipe destined for pipeline projects across the border due to the tariffs and the delays in posting product exclusions. This, in turn, is causing us to have working capital issues, disrupted operations, surplus pipe, and delayed realization of revenues.

We will keep impressing upon U.S. legislators and the administration how important Canadian steel is to the U.S. economy. Perhaps more importantly, our ties between Canada and the U.S. are deep, with many of us having fought side by side against oppression and for freedom throughout the world. We ask the government to continue its strong advocacy for Canadian steel while also working towards an agreement on a modernized NAFTA.

Over the last 18 months the government has been supportive in fighting for steel. As a result of the section 232 measures, we are working closely with the government in an expedient manner but we will need continued close collaboration and effort to defend our workers to get through this in the short term and again in the long term.

In addition to taking steps to ensure free and fair access to the U.S. market, the government should consider taking significant measures to ensure a viable domestic market for steel. Energy tubular imports as a result of diversion of pipe otherwise bound for the U.S. surged 70% in 2017 and have increased an additional 18% in 2018 with no increase in drilling activity. At the same time raw material costs in Canada have been significantly driven up by increased activity of U.S. steelmakers. That is not the case for our overseas competitors. This triple impact of massive increases in diverted energy tubulars, higher raw material prices, and the effective closing of the U.S. market will have a significant impact on our Canadian operations.

As the Minister of Finance has stated, a study of global safeguards is under way. We know adopting such measures is very serious but we are in a serious situation with the domestic market deluged with low-priced imports and significant barriers to the U.S. market. Strong action is necessary.

Finally, trade measures by the U.S. underscore the importance of the energy market here in Canada through pipeline construction that grows oil and gas exploration and production jobs, well-paid permanent middle-class jobs. Building LNG export facilities is vital for Canada's energy economy. We are ready to build those pipelines and pipes from recycled steel with the lowest carbon footprint in the world for Canada, in Canada.

I am confident that we can continue to grow well-paid middle-class skilled jobs if the U.S. and Canada can return to stable integrated steel trade. We can and will invest significantly in Canada and the United States.

I look forward to answering any questions you may have.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Winkler.

We are going to go to Mr. Young, senior commercial sales and marketing manager for Janco Steel Ltd.

Welcome, sir. You have the floor.

[Stephen Young, Senior Commercial Sales and Marketing Manager, Janco Steel Ltd.]

I'd like to thank Dean Allison for the invitation and the standing committee for providing me with the opportunity to speak to you today on behalf of Janco Steel. I will comment on the recently implemented American steel tariffs and their impact on our company and the Canadian steel industry as a whole. We are also proposing a viable solution and plan to compensate companies like Janco Steel who are adversely affected by these tariffs.

Janco is a steel service centre located right in Canada's steel town—Hamilton, Ontario. We supply carbon flat-rolled steel to a wide variety of customers and industries that buy that steel from Canadian steel mills. It is a 30-year-old family business that today provides employment to over 180 people.

Our business has grown over the years to this number of 180 employees, with significant sales and development in the United States. Tonnes sold in the U.S. have increased 270% since 2014 and now represent 30% of Janco Steel's business. Needless to say, the tariffs have created very difficult issues for our company.

Significant negotiations and discussions have had to take place to determine how the additional tariff cost will be paid on existing orders. Some customers have acquiesced to paying some of the tariff, while others have refused to pay anything at all. Some have cancelled their orders with us. In some cases, Janco is paying the full costs of the tariff to maintain the customer relationships that have taken us years to develop. We have also been forced to cancel some of our orders and hold off placing new orders with our Canadian steel mills.

The fact remains that if our U.S. customers had bought their material from an American supplier, they would not be affected. This plays right into President Trump's agenda and is directly threatening the business of Janco Steel and the health of the Canadian steel industry.

In the longer term, we are very concerned about our U.S. business landscape. Most U.S. customers are currently unwilling to place orders or to engage in any long-term business commitments due to the tariff. Every day we are finding that we are no longer competitive compared to American steel service centres. Our American customers are now sourcing new supply from their local market to secure greater cost certainty. The longer Janco remains uncompetitive in the U.S., the more permanent the damage will be to our business. We need an immediate plan for how we will remain competitive. Without assistance from our government, this critical U.S. business will be lost.

An immediate solution would be to get the NAFTA deal done. We understand that everyone is working hard at this and that a successful deal would allow us to go back to business as usual. But here is our problem.

We have seen our business in the U.S. decline by 60% in the month of June compared to April and May of this year. This decline in sales will become permanent unless we get help. As a direct result, we have frozen all hiring, including suspending our initiative to hire numerous summer students. In the worst case, we will have to consider layoffs for the first time in our company's history.

Another significant problem is our cash flow. We have to pay our customs broker within five to six business days so it can remit payment to the U.S. government in eight days. We've already incurred in excess of $330,000 in tariff payments in the first 18 days of June. Given that customers do not pay their invoices for 50 to 60 days, we will have to pay an estimated $670,000 to $800,000 to the U.S. government before any receivables are even collected by our company. This is very difficult to manage, but here is a plan.

Al Schutten, the owner and president of Janco Steel, proposes that the Canadian government implement the following as a possible short-term solution. Canada is placing a tariff on U.S. steel imports starting on July 1. The funds collected should immediately be made available to companies like Janco Steel that are shipping steel into the U.S. and are being charged the illegal U.S. steel tariffs. These Canadians companies should then be entitled to a payment equalling 50% of the tariff payments they have been required to make to the U.S. government.

This would go a long way to allowing Janco and other steel companies to remain competitive, maintain their existing U.S. business and employment levels, and minimize the long-term loss of our U.S. business. It would also help to alleviate, to a degree, the cash flow issues that we face.

We are aware of the good work that the Honourable Chrystia Freeland and others have done so far in challenging the illegal section 232 tariffs, and we expect success from the case they initiated with the WTO. We are also asking that when the U.S. is forced to repay the tariff funds it has collected, these funds be used to make Canadian steel companies financially whole for their verified tariff payments. The money would also be shared with any U.S. customers who have helped by taking some of the tariff payment burden.

The success of Janco Steel's business model is predicated upon having an open trade border with the United States. If these tariffs remain in effect for much longer, our current business model will simply not work. Without some assistance from our government, we will be forced to make some very difficult decisions—decisions that we had not even thought of or entertained a month ago.

Thank you again for this opportunity to speak. Thank you to the government officials who are working hard for a solution.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Young.

Before I get into dialogue with the MPs, what community is your business in?

[Stephen Young]

It's in Hamilton, Ontario.

[The Chair, Liberal, Mark Eyking]

You're right in Hamilton.

[Stephen Young]

Yes, it is in the Stoney Creek part of Hamilton.

[The Chair, Liberal, Mark Eyking]

Most of the families are from right around the Hamilton area.

[Stephen Young]

Yes. Our footprint is interesting, because we are strictly in Hamilton, and then we go further afoot and afield to the United States with no divisions in the U.S. at all. Our total growth model is to have North America be available to us.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to have dialogue with the MPs now. Looking at the time, we have time for probably six slots. We will start with the Conservatives.

Mr. Allison, you have the floor.