International Trade Committee on Oct. 4th, 2018

[Terry Sheehan]

Paul, you had mentioned that steel prices had grown extraordinarily. Recently, when Tracey and other folks were down in Washington, one of messages was, “Hey, these tariffs are going to result in an American tax. You're going to be paying more for your steel.”

Could that be part of what's happening in the market?

[Paul Halucha]

It's very difficult to distinguish between the effects of the tariffs and the effects of the higher prices. I would absolutely agree with that.

[Terry Sheehan]

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Sheehan.

We're going to move over to the Conservatives now for five minutes.

Mr. Carrie, you have the floor.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

Like my colleague Dean, I was taking part in our jobs tour over the summer, listening to smaller and medium-sized companies. One of the scary things I was hearing was CEOs saying that they're right at the precipice now. They're trying to make decisions like whether to reinvest, close down, or move their company to the United States.

I heard over and over again that we have to get rid of these tariffs, or get a new NAFTA. I apologize if I don't share Ms. Campbell's enthusiasm on the deal. The thought out there was that if we were going to be signing on to a new agreement, we wouldn't sign on to an agreement that's giving us less access than the agreement we had before. There was a sigh of relief perhaps, when the agreement was signed, but once you start looking at the details, these section 232 tariffs are still there.

Mr. Halucha, you were here a couple of years ago. You've been in front of us and have talked about the challenges of the steel community, and the benefit of our steel industry being able to have access to the United States. There appears to be no end in sight for these other tariffs.

What are you hearing? Are you worried about the long-term impact that this is going to have on our Canadian steel and aluminum industries?

[Paul Halucha]

I'm going to respond in two ways.

I'm an optimistic person by nature, so I remain optimistic.

We worked very hard to get resolution on the free trade agreement with the United States.

I think you're talking about the autos side letter that was negotiated as part of the deal, which does include protection for Canada if the United States does proceed with a section 232 scenario going forward. From my perspective, in my area of responsibilities, it was one of the most important parts of the negotiation. It's been widely supported by the industry as a good resolution, and hopefully gives them the certainty and protection they need going forward.

[Colin Carrie, Conservative, Oshawa, ON]

That is for auto industry, yes. Automobiles are made out of steel and aluminum.

You talked about competitiveness. As I go through it, I haven't seen anything in the agreement that makes us more competitive with this agreement than the previous one—in NAFTA.

One of the things you mentioned, with the steel industry in particular, was dumping. My colleague, Ms. Ramsey, mentioned that. One of the things in the new deal—I think it's in chapter 32, “Exceptions and General Provisions”—is article 32.10, “Non Market Country FTA”. One of the tools that we had as a sovereign country was to be able to negotiate in Canada's best interests. For example, say that dumping is coming from China. If we were able to make a trade agreement with China to give us greater access for our products then we could start to limit steel that's coming into our country. With this new agreement, it looks like we've signed away our sovereignty. Any time we want to talk a free trade agreement with China, it looks like we're giving the veto to the United States and Mexico.

As a proud Canadian, I was shocked to see this. How is that going to affect your ability as a representative of our government to work in Canada's best interests, if our requirements don't align with the United States?

[Paul Halucha]

I don't think there's any reason to believe we've given up anything on our ability to take action against Chinese dumping, or dumping from non-market economies.

That's a process that continues—

[Colin Carrie, Conservative, Oshawa, ON]

I'm talking about making a long-term agreement with a non-market economy.

[Paul Halucha]

With a free trade agreement, I think that's another order of economic relationship, but existing rules enable us.... The steel industry I think is one of the biggest users of the CITT process, and all of the improvements that were made were made on their recommendation. They have been very successful.

Actually, it's interesting. If we look at the data now, one thing we've noted is that we have not seen a large surge of Chinese steel coming into the Canadian economy. It's because the web of CITT orders against dumping is working and the CBSA is working at keeping that out of the marketplace.

The authorities that the Minister of Finance is using or considering right now, the safeguard measures, are not eroded at all. We have an ability to make those decisions, I think.

I'm not in a position to talk about that portion of the agreement that you noted. I'll leave it to Ailish, if she has an answer on that. From my perspective, we have not reduced at all our ability to deal with threats from a non-market economy. Actually, I think that our interests and those of the U.S. are completely aligned on that. I mentioned the work we've been doing internationally. In the global forum, the question there is largely about the transparency of pricing from China and other non-market economies, and we have been completely aligned with the United States for a number of years at those hearings.

I think when the tariffs came in, that was one of the points that probably surprised us the most because we have been a strong ally of the United States in an effort to take on dumping that erodes not just the U.S. economy, but also the competitiveness of our firms.

The last time you heard me testify on, I think that was the topic I was discussing because that was the main threat, and getting the CITT improvements done was the response to that.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

You're way over time there. It was a good dialogue.

We're going to move over to the Liberals now. Mr. Fonseca, you have the floor.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Thank you, Mr. Chair.

Thank you to all the witnesses.

Ms. Campbell, you started your remarks by speaking about the great team that we had down in Washington, and the strategy. Our chief negotiator was Steve Verheul, who has been before our committee a number of times. Also, you spoke about our minister, Chrystia Freeland, and our ambassador, David MacNaughton.

For them to have been able to do their job so effectively, they had to know they had this robust team behind them. When they're really going to the edge, they have to know there's something backing them up. I thank all of you for working so well as team trade Canada.

Often from crises we find that there's opportunity. In working with the steel and aluminum companies, and as you're doing a deeper dive, many of them are coming to see you for support, be it the EDC, BDC, or for employment services. Whatever the case, is this an opportunity that you take now to address diversification?

You're looking at where your market has been. We're going to work with you to continue to hold that market, but then how can you grow? Where can you go? There are opportunities that have come about through CETA, as well as through what will be happening with the CPTPP, and now the USMCA.

I heard, Ms. Campbell, you say that our aluminum exports to the EU are up 200%. Can you give me other examples like that or companies that you're working with? Are you taking this opportunity to work with companies for diversification?

[Ailish Campbell]

I think this committee really loves data, so let me just give you a couple of data points.

Twelve hundred large companies are responsible for 60% of Canada's merchandise exports. What that means is that when Paul and policy officials are recommending really key strategic sequencing of policy, commercial support and additional direct support, we often have to start with the key anchor companies in those ecosystems.

That's why the actions to protect our largest steel and aluminum manufacturing companies and with the strategic innovation fund have been so critical. I say this as someone born and raised in Hamilton and whose grandfather made a great blue-collar wage at Stelco. I couldn't be more proud of my hometown.

We start there. We then move to 1,200 small and medium-sized enterprises —and this is really fascinating—responsible for almost 30% of our merchandise exports. This next 29.8% tranche of our exports is in the hands of 1,200 incredible growth companies. That means that we have about 42,000 small businesses responsible for the last 10%.

What we want to do is to convert that group, that addressable market of SMEs, who are already exporting, but the vast majority only to one market, the U.S., and only a handful of products I think what you see in front of you is a team dedicated to working with existing companies and saying, “How can we help you innovate, create new products, find new markets, and take better risks. What are the tools you are missing?”

I think it's been a good dialogue today. Each one of us invites ongoing referrals from this committee, for companies when they tell you what they need. Again, I think the other key message here is that there's no wrong door. Whether you come in through a digital service, through a trade commissioner globally or meet us in one of the regional offices of EDC, BDC or the Government of Canada, we will direct that company to the best market.

My last stylized point is that we have seen an increase in our Asian offices—Tokyo, Singapore, Taiwan, Shanghai, Beijing. We have seen foot traffic grow in those markets by more than 50%. That means that Canadian companies are not wasting, shall we say, a crisis. But framed more positively, they're seeing an opportunity to sell Canada to the world. That's our mission.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Thank you very much.

Those are very important numbers, with the first 1,200 at 60% and another 1,200 at 29.8%. Is that right? That leaves 42,000 for the last 10%.

Do you use a wraparound approach?

We have all of you here right now. If there were a company here, is it business-centric? If a company were here and said what it was was experiencing, perhaps looking at the threats and the risks and everything that's hitting them right now, almost like a virus, you'd be like white cells coming in to help out.

Do you use that wraparound approach so that yes, you're going to address those immediate issues of what's urgent and important, but then look to the future and see what you can do to give you more stability and open up more markets?

[The Chair, Liberal, Mark Eyking]

Mr. Fonseca, I'm sorry. You only have five seconds and I don't think that's fair to the—

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Just say yes.

[Ailish Campbell]

Yes.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

That's great.

[The Chair, Liberal, Mark Eyking]

Your time is up.

We're going to move over to the Conservatives.

Mr. Allison, you have the floor.

[Dean Allison, Conservative, Niagara West, ON]

Thank you very much, Mr. Chair.

My question for you, Paul, in terms of the safeguard consultation that happened awhile ago, is whether you guys are any closer to making recommendations. Where are you guys at in the thought process there? It was obviously a U.S. concern, but it's also a concern as it relates to the SMEs versus the big producers.

There's a fine balance there in how we handle that, because some of those small SMEs were getting their steel from cheaper countries, which I realize were totally dumping in some cases. There's also a concern about how we handle the balance of that, in terms of additional costs.

[Paul Halucha]

The decision is made by the Minister of Finance, and we were part of the consultations. We did a lot of the analysis. I think you're going to have that department here in a week or so. I just don't know what date they will make an announcement, but I can tell you that it was robust analysis that was undertaken.

One of the considerations, as you design the safeguards—just as when we did the retaliation packages on July 1— is the question of unintended consequences. If there are contracts in place in many businesses, we want to be really sure that if we put a safeguard in place and someone is either still required to export under those conditions or has suddenly lost their linkage to an important external supplier, that we'll all hear about that story and about the fact it's not a benefit.

We're being really careful in doing the analysis on the contracting sides, and also around the issue of scarcity. We want to make sure, if we're putting a safeguard in place, that we're doing it for a reason. If there's not a domestic supply— and this sounds very straightforward, but when you get into the codes and you're looking at all of the thousands of different products, then you need to get to that level of granularity. We don't want to be in a position where, two weeks after we put a safeguard in place, we find out that we turned off the tap to an international supply for somebody, that there's no domestic opportunity and that all we've done is increase the price for them.

We're being really careful with the calibration. Any decision we make has to be defensible, both domestically and at the WTO. One of the foundational points for the government is that as we negotiated the trade agreements and engaged in all of our international activity, we remained steadfast in our support for the international rules-based system. In our own conduct, we need to make sure that any programming or support we provide or actions we take in response are defensible in those kinds of frameworks.

[Dean Allison, Conservative, Niagara West, ON]

The recommendation has been made that Finance make those decisions. That's good to know.

You talked about this in terms of unintended consequences. We have again been listening to some of the concerns of the SMEs. They're saying, “You know what guys? The stuff that's coming in and that we're now tariffing, we can't actually get in Canada.” So the reality is that I appreciate that.

Is there a method for us to get information back? I realize that's a political decision. You make recommendations. It's political.

Is there a way to feed back information so that we can look at removing things from lists and...? You know, I get it. I know what we're trying to do, but my concern is that there are a lot of unintended consequences when you have to deal with economies that are so big, with countries and with all of those other things that are going on.

[Paul Halucha]

Again, on their website, the Department of Finance has a remissions relief form where companies can identify these specific instances where they can't get something in Canada, or they're obliged as a result of contract to continue their relationship with a foreign party. Those are being processed as well. I understand that those recommendations will go to the minister shortly, if they haven't already.

When we designed the retaliation package, going into July 1, every effort was made.... If people remember, it was June 15 and we had a two-week period to hear from basically all Canadian businesses. We did everything we could to make sure there wouldn't be adverse consequences as a result of some of the tariffs—as much as you can when you're actually imposing a price increase through a broad tariff across the entire Canadian economy into central primary commodity classes.

By definition, we knew the prices were going to go up. There was no surprise in that, but what we didn't want to have happen was the scarcity issue. We didn't want to raise prices in instances where there was no Canadian supply. It did happen in some cases, and we have been working with Finance to make sure that, as they look at the remissions process, those are identified and considered.

[Dean Allison, Conservative, Niagara West, ON]

I'm not assuming that you have any hard data. There were a lot of anecdotes this summer of firms struggling. Do you guys have any hard numbers in terms of sales, employees or layoffs? I guess we need a longer period to figure that stuff out, but do you have anything at all?

[Paul Halucha]

I don't think we....

Patrick, do we have any?