International Trade Committee on June 26th, 2018

[Stephen Young]

Absolutely.

[Randy Hoback, Conservative, Prince Albert, SK]

You're going to lose customers, absolutely, and when you lose customers, that means you lay people off. When you lay people off, then you're ordering less steel, which means our steel companies are going to feel that impact too. So you start to see the domino effect of the layoffs moving through.

One of the things I find frustrating is that the issues we're facing here, with China dumping steel, have been here for a while, and the U.S. asked us to help them. We could have said, “You're right, Mr. Ross; we need to deal with this”, and we probably wouldn't be here today. We'd be like Australia, exempted without a quota, if we had done that, but we haven't, so this is the scenario we're in today.

I look at it in a couple of ways. From a consumer point of view, we can say that if we bring in a counter-tariff, my manufacturers on the Prairies, Bourgault and companies like that, will start paying a lot more for their steel. Their customers are farmers. We were at a farm product show last week and they were saying things like, “I think I'm going to keep my drill.” Already it's having impacts. The domino effect is already starting to happen. Where does that come back to? It's into the steel sector here in Canada.

How do you deal with that? How do you move forward? There has to be a way to still make the U.S. respect us and still say there is going to be an impact from their decision to put a tariff on without having this whole pile of domino effects. The Canadian Labour Congress talked about employees and all that. All that would be great if the cupboards weren't bare, but we have a government that has spent crazily for the last two years and now we have to find revenues in order to do those types of things, so where does that revenue come from?

I like your idea about the countervails. If we're going to do that 25% on some $16 billion, there might be $2 billion, $3 billion, or $4 billion coming into the coffers. It shouldn't go to general revenue; it should come back to the people who are impacted the most.

Mr. Young, I'm just kind of curious. If this were to go on for six or eight months—we have mid-terms in play right now—what would your business look like in November or December?

[Stephen Young]

It will be a much different picture, and, as I've said, we will have to make some difficult employment decisions.

Something that is also really important to note is that if it is just a matter of pushing it out a little bit and then we find out that we have to make some worker decisions and lay off some people, we may not get that skilled labour back. They will go somewhere else for a job. We've actually painstakingly cross-trained our 180 employees so that when we are slower in certain areas, they can work somewhere else. It has actually been a real blessing to a lot of families, I can tell you, during downtimes. That is what's happened in our company, and we never have somebody who is just an aspect of our company who gets laid off. That does not happen at Janco. That is probably the model that many Canadian companies use—cross-training. Let's make sure we are doing that.

[Randy Hoback, Conservative, Prince Albert, SK]

I agree with you.

Mr. Winkler, you probably have the same scenario in Regina. When you're not working on one certain type of pipe, you might be working on another type of pipe, so how do you see this impacting your industry? Let's say this goes on until November or December. How will it affect your future orders? How will it impact them? You have a very unique product. It's not something that somebody can gear up and do tomorrow in the U.S., so what do you see happening?

[Conrad Winkler]

Let me also repeat about our workforce and the cross-training and the tremendous skills they bring forward in the making of all of these products. Pipe really is an engineered product, and the skills that go into it are tremendous. In places like Red Deer we make these premium connections, as well as some very premium and interesting products that take tremendous skills throughout.

Of course, for us, the impact is very serious. We have a variety of different businesses. Some are focused really on the casing and tubing, which, almost entirely, we sell into the Canadian market, but right now we face this massive diversion issue, which leaves us with a much weaker order book than we typically have at this time. At the same time, right now there are a lot of pipelines being built in the Permian Basin. That's just in North America. Projects move around depending on where most of it's happening, but, of course, we also have some Canadian pipeline opportunities as well.

[Randy Hoback, Conservative, Prince Albert, SK]

Is there anything we can do as a government to make you more competitive, to help absorb some of that 25%? You're probably going to see a drop in the dollar. You're probably going to see some negotiations on your margins with respect to sales. Are there other things we could be doing that would make life easier and actually make you more competitive, not only in U.S. with the 25% tariff but actually globally?

[The Chair, Liberal, Mark Eyking]

Mr. Hoback, your time is up.

I'll allow a very short answer, Mr. Winkler. Then we'll wrap it up.

[Conrad Winkler]

There is a set of programs in place to help with some of the investment in technologies. We do hope to take advantage of some of those, because they are really critical for our overall competitiveness. Those will be very important to us, for sure.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

That wraps up our second round.

Witnesses, thank you very much for coming this morning. You represent a lot of people—your businesses, the people you represent, the workers. This is a very serious situation. I appreciate your coming and giving details.

Thank you very much.

[The Chair, Liberal, Mark Eyking]

Welcome, everybody, to our third round on a very busy morning, a very important morning, for our committee. I commend our witnesses for coming here for this special meeting, and also MPs for pulling this meeting together. It's a very important time for our workers, consumers, and manufacturers on both sides of the border.

In our final group, first, we have Mr. Dias through video conference.

Can you hear us okay, sir?

[Jerry Dias, President, Unifor]

I can hear you just fine. Thank you.

[The Chair, Liberal, Mark Eyking]

Excellent.

We also have witnesses from Forge, from Canadian Manufacturers & Exporters, and from ADF Group Inc.

Everybody's on deck? If anybody's in front of a committee for the first time, we try to keep the briefings to five minutes or less so that we have lots of time for dialogue with MPs.

Without further ado, we'll go right to you, Mr. Dias. I'd like to thank you for the hard work you're doing on both sides of the border and for working with the Canada team to try to get 'er done.

Go ahead, sir. You have the floor.

[Jerry Dias]

Thank you very much. It's an honour to work with Steve and Chrystia as we're trying to fix NAFTA.

My name is Jerry Dias and I am the national president of Unifor, Canada's largest union in the private sector. With me is Angelo DiCaro, the acting director of our research department and our lead policy analyst on international trade.

On behalf of Unifor, I want to thank the chair, vice-chairs, and members of this committee for the invitation to speak and for accommodating our participation through video conference. I have five minutes, so let me get right at it.

U.S. trade attacks on Canada are a clear and present threat to our national economy. A trade war with the United States is not looming. It's here already. Last month I was in Moncton, New Brunswick. I was giving a speech to our members, including those who work in softwood lumber and in groundwood paper mills. I arrived to the news that the Trump administration had triggered national security tariffs on steel and aluminum, and that Canada was in the crosshairs. I explained in my speech how the $16 billion worth of tariffs equates to about 40,000 direct metalworking jobs in Canada, not including the spinoffs. Those include thousands of Unifor members in aluminum and steel facilities across Canada and in Quebec.

I said at the time that it was time to stand up, to fight back, that Canada couldn't get pushed around anymore. But as I was making my case, I realized I was speaking to workers already in the grips of this struggle. I am glad that strong economic conditions have helped our softwood producers stay afloat despite U.S. tariffs. The problem is that there is no end in sight to this dispute.

It's different for our newsprint industry, which is facing a much more challenging economic outlook. These producers are facing export duties in excess of 30% in some cases. We are monitoring closely situations at mills in Corner Brook, Trois-Rivières, Port Alberni, Powell River, and Crofton. These mills are on the brink and job loss appears imminent, yet there has been no enhanced federal support package provided to them, unlike for softwood.

It was shortly after I returned from Moncton that I learned about Trump initiating a national security investigation into the import of cars and parts. Our auto industry directly employs 120,000 people in Canada. About 95% of what we export goes straight to the United States. Two-thirds of all imports of autos come from the U.S. as well. Our supply chains are tightly connected. Suffice it to say any major tariffs on cars and parts won't be good for anyone.

How Canada responds to these trade threats is of critical importance. No one wants to see this trade war escalate further, but the U.S. has left us with no choice but to strike back. Unifor supports the proposed countermeasures as laid out by the federal government. The problem is that slapping tariffs on U.S. goods by itself will not keep our factories running or our workers employed. Now is the time for government to step in, to help our key industries weather this storm. That means moving quickly to develop and execute a mitigation strategy, not unlike what was delivered for the softwood lumber industry. The Government of Quebec has already offered up $100 million to bolster the steel and aluminum sector. We have to take this opportunity to reinvest in our workplaces and social infrastructure so a move could actually help our trade diversification efforts.

We have to keep skilled workers on the job and avoid permanent layoffs. We have to do that through enhanced work sharing and other measures. Funding social programs like pharmacare would give our economy a progressive competitive edge. Financial supports, including loan guarantees, can help facilities stay afloat as well as modernize production processes. These should be explored.

By getting creative we could actually backstop these new investments with revenues generated through the proposed counter-tariffs, a figure we have pegged at nearly $2 billion. These are just some ideas. We look forward to hearing more.

Let's not sit and wait. Canada will not be a casualty in this ridiculous trade war. We won't let that happen.

Thank you very much. We certainly are looking forward to your questions.

While I'm at it, great work, Tracey, on the trade file. Thank you.

[The Chair, Liberal, Mark Eyking]

Good stuff, Mr. Dias. Thank you.

[Tracey Ramsey, NDP, Essex, ON]

Thanks, Jerry.

[The Chair, Liberal, Mark Eyking]

We have all good members on this committee. Even the ones who are visiting are doing a really good job.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Thank you, Mr. Chair.

[The Chair, Liberal, Mark Eyking]

We're going to move over to the ADF Group, with Mr. Paschini, general manager.

Go ahead, sir, you have the floor.

[James Paschini, General Manager, Production, ADF Group Inc.]

Thank you.

Hello, ladies and gentlemen. I would like to thank you for the invitation to participate in this committee.

ADF Group was founded by my grandfather, back in 1956, as a blacksmith's shop. Today ADF is a key player in the manufacturing of structural steel components in Canada and the U.S. The company operates a state-of-the-art facility located in Terrebonne, Quebec, with more than 500 employees. We also operate a facility in Great Falls, Montana, which was built from the ground up in 2013. Today there are nearly 200 people at this facility.

Many major landscape projects across North America bear ADF's signature, such as towers one and four at the World Trade Center in New York. We have done over a dozen high-rises in New York alone. More recently we participated in the construction of the new Champlain Bridge in Montreal, and are currently working on major airport projects at LaGuardia Airport, New York, and Salt Lake City airport. As you can see from the list of projects, the core of ADF's revenues comes from the United States—approximately 80%. Needless to say these past months have been challenging for our Terrebonne-based plant. These last few weeks have just shaken up all of the American market, mainly because of the new imposed tariffs and all the uncertainties surrounding them.

The first time we heard of the tariffs was in March, when the first tweet went out from President Trump announcing the U.S. government's intention to impose 25% on steel and 10% on aluminum. At that time ADF was running the final leg of negotiations for three major U.S. contracts, for an estimated total worth several hundred million dollars. These projects would have required creating almost 100 new direct jobs in our Terrebonne facility. In the days following the announcement we lost all three of those contracts, one of which suddenly became a Buy American Act project. We quickly understood that American clients were now afraid to commit to Canadian companies.

In response to this major turn of events we needed to act quickly to adjust for our future, so between the months of March and May we set a plan in motion, including closing our Florida sales office and relocating staff personnel, adjusting our staff numbers downward, and letting go of 75 people across the entire group, 50 of whom were from our Terrebonne facility. More recently we were approved to implement a work-sharing program, with the Canadian government, for more than 160 of ADF's workers to be able to save their jobs. Their hours are currently reduced to fewer than 20 hours per workweek.

Before this trade policy officially came into force we landed two new contracts in the U.S., one of which was a major building on the east coast and called for over 14,000 tonnes of steel. In this particular case most of the steel has been purchased from steel mills in Germany, Great Britain, and smaller portions from the U.S. If the Canadian duties are implemented as a response to the new U.S. trade policy, ADF Group will have an estimated setback of at least $500,000 U.S. on the raw steel alone. Steel mills in the U.S. have hiked up their prices more than 25% since March 2018, and this new imposition from our Canadian government could be very detrimental to companies such as ADF.

Currently the majority of ADF's steel suppliers are U.S. mills. Unfortunately, Canadian mills cannot keep the pace to suffice to the demand in structural steel, oftentimes not having the specific H-beam profiles needed in most of our major projects. Needless to say, if Canadian mills were able to provide us with the right type of product and in the appropriate quantities needed, we would source all of our steel requirements from within.

In closing, I'd like to thank you all once again for taking the time to better understand the current reality of a structural steel fabricator. We hope for the best in the upcoming negotiations. These are critical times for Canada and all our trade allies. I hope to have shed a bit of light on the current situation. It will be my pleasure to answer any questions afterwards. Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, sir, for coming. I was previously a business owner. To change channels that quick, it's hard to do, for your employees and for you. We appreciate your coming here.

We're going to move over now to Mr. Wilson from the Canadian Manufacturers & Exporters. Go ahead, sir. You have the floor.

[Mathew Wilson, Senior Vice-President, Policy and Government Relations, Canadian Manufacturers & Exporters]

Thank you.

Good morning, Mr. Chair and honourable members.

Thank you for inviting me to speak on behalf of Canada's 90,000 manufacturers and exporters and our association's 2,500 direct members to talk about U.S. tariffs on Canadian steel and aluminum.

I want to thank all members of the committee for organizing and hosting these critical sessions under challenging times. Manufacturing is the largest business sector in the country, directly accounting for 11% of GDP, 67% of exports, and 1.7 million employees in high-wage and high-skilled jobs in nearly every community across the country.

Through NAFTA our industry has spent the last quarter-century building a common North American market. Manufacturing is deeply integrated across the continent and relies on complex supply chains that span Canada, the United States, and Mexico. Disruptions of any of these three countries risk upsetting the balance of the North American manufacturing ecosystem, so I will be blunt: we are very, very worried today. The current tariffs on steel and aluminum, the proposed future tariffs on auto, and the spectre of a global trade war represent serious threats to Canadian manufacturing and to the entire Canadian economy. CME has decided to respond to the situation, as we always have, by engaging constructively with government, providing practical solutions, and relaying directly to you the thoughts of manufacturers from across the country.

We support the government's retaliatory tariffs. They are a just response to the frankly absurd and insulting premise with which the U.S. administration levied steel and aluminum tariffs on Canada. I would say that manufacturers support the counter-tariffs too and they understand the political necessity to so do. However, they are also very concerned that Canadian counter-tariffs will have a major impact on their business especially if the tariff fight is prolonged or intensified. Pain will be felt—of that we have no doubt—so the question becomes how we alleviate that pain.

This is what I would like to talk to you about today.

CME responded to the government's consultation on June 15 after canvassing its members for over two weeks. We had a very strong response rate, which indicates to us that the level of concerns is very strong and very high. We'd like to provide the committee with our five key recommendations that came out of that exercise.

First, we should focus again on NAFTA renegotiation and on concluding the deal. It is of paramount importance that the government redouble its efforts on NAFTA and try to conclude a deal as soon as possible. NAFTA instability is a true threat to manufacturing and to the entire Canadian economy while the tariff fights are a distraction and are designed to make us take our eye off the ball. The government is right to say that tariffs and NAFTA negotiations are two separate issues, because they are, but the reality is that the U.S. administration clearly doesn't care and is using it to turn up the heat on Canada and NAFTA via tariffs. The government should not fall into this trap and get bogged down in tariff fights. Concluding NAFTA as soon as possible should be our focus.

I would also like to add that CME's original submission to the NAFTA negotiations detailed principles that we still believe NAFTA negotiators should follow to ensure support for an integrated manufacturing sector. These include, first, to do no harm to the economy and integrated manufacturing; second, to modernize the deal to strengthen manufacturing and to make it more competitive globally; third, to expand the deal and to cover excluded areas; and, fourth, to co-operate with the United States and Mexico on our trade with third countries.

The second area we offer to Canadian negotiators is to exclude manufacturing imports and retaliatory tariffs. The current proposed retaliatory list includes a range of manufacturing inputs that are not readily available from Canadian sources. Therefore, application of the tariffs would do double injury to Canadian manufacturers through the cost of the U.S. tariffs on inputs as well as the Canadian-levied counter-tariffs. Therefore, government retaliatory measures need to exclude, to the greatest extent possible, manufacturing inputs to avoid disastrous repercussions to the industry and minimize disruptions to manufacturers' integrated supply chains.

Number three was to introduce safeguards to protect the domestic market against third-country dumping. The U.S. tariffs not only pose a significant economic threat to Canadian steel and aluminum producers, and to manufacturers more generally, but could also distort global trade flows of these primary products. Because of Canada's proximity to the U.S. and given the size of our domestic market, steel originally intended for the U.S. may be diverted into Canada and dumped by exporters. To protect against this, the Canadian government should immediately implement existing safeguard protections to ensure that Canada does not become a dumping ground for steel and aluminum from other countries.

Number four is to develop an emergency relief fund for distressed industries. The federal government should make available immediately financial compensation packages for Canadian businesses negatively impacted by tariffs. This could include direct financial support, holidays from payroll and other taxes, and support for employee training. These funds should be structured in a manner that is trade-compliant to ensure that Canadian products continue to be exported to world markets.

Number five is to reinvest tariff revenue into investment support programs more generally. If the trade dispute with the U.S. continues for any length of time, businesses will continue to avoid investing in Canada, as they have been. Canada should consider leveraging the tariffs collected to support business investment. This could be through direct investment supports that could be matched with private sector money—to de-risk technology adoption, for example—or it could be done through the tax code to spur such investments as updating Canada's accelerated cost of capital allowance rules to match the recent U.S. changes, or, more generally, lowering corporate tax rates.

In summary, we must re-engage in NAFTA negotiations to secure a deal as soon as possible. An imperfect NAFTA is far superior to no NAFTA and a trade war with our most important customer. If retaliation is pursued, Canada must target tariffs carefully and limit economic impact on the integrated economy. Further, we believe safeguards are necessary to limit steel and aluminum dumping in the Canadian market. Finally, we believe the government must act to support potentially distressed companies and establish broader and more substantial supports to spur investment and competitiveness in uncertain times.

We hope our comments will provide helpful guidance to the government while you make your final determinations on possible retaliation. While we understand the political need to retaliate, we believe it must be done with the utmost caution to not inflict additional harm in Canada on its most important trade-exposed sector—manufacturing.

Thank you. I look forward to the discussion.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Wilson. You always step up to the plate and come forward whenever we're doing a study. Thank you for coming and representing your manufacturers and exporters.

We'll now go to Mr. Dimitrieff from Patriot Forge Company.

You're the president.

[Robert Dimitrieff, President, Patriot Forge Co.]

I am.

[The Chair, Liberal, Mark Eyking]

You're the right guy. Thank you for making the time available to be with us today.

Go ahead. You have the floor.

[Robert Dimitrieff]

Mr. Chair, members of the committee, clerk, fellow witnesses, thank you for the opportunity to appear today and to contribute to the committee's work on this important issue. My name is Robert Dimitrieff, and I am the president of Patriot Forge, the largest open die steel-forging producer in Canada. We are a Canadian success story, starting from simple roots and now employing over 250 Canadians in our facilities in Brantford and Paris, Ontario.

I'd like to start by emphasizing that these tariffs will have a very significant negative impact on our company. If we are unable to secure relief from the Government of Canada, our business will be forced to close within a few months of July 1. We simply will not be able to afford to continue operating.

Since 1976 we have specialized in producing high-grade specialty steel and metal alloy components that are sold on the global market. We are an essential supplier for power generation, oil and gas, nuclear power, infrastructure, aerospace, and in particular military. Since my father founded our company 40 years ago, we have experienced continued growth. The business has expanded rapidly, even with the downturn in oil and gas. To meet this growing demand, in 2015 we invested $65 million in our Brantford facility, $10 million of which was structured as a loan under the FedDev Ontario economic development program. We were very grateful for the federal government's support and for its recognition of Patriot Forge as both an innovative, market-leading manufacturer and an important economic engine for southwestern Ontario.

Sadly, today we are facing the most serious threats to our business operations from both sides of the Canadian border. Unfortunately for Patriot Forge, the U.S. tariffs on imported steel products are already making it difficult for our operations to continue. We currently ship 90% of our products to the United States. This includes contracts for specialized parts that are sold to the U.S. military through the Canadian Commercial Corporation. In the next two weeks, we expect to ship over $1 million worth of product to the United States that will be subject to a 25% tariff. Since the U.S. tariffs have come into effect, we have been paying the difference for our U.S. customers to avoid losing them to our American competition. Obviously, this is not a sustainable solution. Some U.S. customers are already beginning to question whether they should be sourcing from the United States instead.

In Canada the proposed retaliation to the U.S. steel and aluminum tariffs will only add increased stress on Patriot Forge's operations and financial exposure. Due to the high grade of manufacturing standards expected by our customers, the quality steel alloy required for our production must be sourced from specialty steelmakers in the United States. At the moment, there is only one Canadian specialty steel producer, and it does not have the production capacity and technical capability required to meet our demands. We are therefore forced to source our raw material from the United States. A Canadian tariff of 25% on raw steel and metal alloy imported from the U.S. will make Patriot simply unable to compete with our U.S. competitors.

To give you a sense of the financial impact, our latest forecast, which we did this past week, expects that without tariff relief from the Canadian government, our company will have an average tariff expense of $682,000 Canadian per month starting July 1, specifically on imported raw materials from the U.S. to Canada. We cannot afford these costs. They will have a disastrous impact on our financial situation and on our viability as a company and a local employer.

In the face of these serious obstacles, we are looking at every option to reduce expenses and reposition our products for export to other markets beyond the United States. However, this will take time. We can change our tack, but not without difficulty and not without the Canadian government's help. We are asking Finance Canada for tariff relief so that the immediate threat to our business is removed and we can try to shift our business to manage the new trading reality. With a July 1 implementation date, we cannot manage without some government assistance to mitigate the serious impact of the Canadian countermeasures.

I cannot emphasize this enough. Without relief from the Canadian countermeasures, we will not be able to adapt our operation and we will be put out of business. Right now 250 Canadians work at Patriot Forge in Ontario. None of us want to be the first economic casualties of a trade war.

I thank you for this opportunity and respectfully call upon members of this committee, as well as all members of the federal government, to please help us find a solution to the serious problem we find ourselves in.

Thank you, Mr. Chair. I'd be pleased to take your questions now.