International Trade Committee on Oct. 16th, 2018

[Terry Sheehan]

Thank you for that, just for the record. I'm from Sault Ste. Marie. I'm right on the border with the United States, and we have large steel producers but we have a number of SMEs there as well that are servicing the steel industry, including some that do not source the steel from Algoma or Tenaris. SIS is one of them. They had contacted me about the situation they had, and I was able to walk them through the process.

Have you been able to talk with any of your MPs to go through the process?

One of the reasons I wanted to bring this up is that my background is in business and economic development, so I have a little bit of an understanding, but I think we also need to engage the local economic development corporations, the regional economic development agencies, and help some of these SMEs walk through this stuff. The remittance orders are retroactive back to July 1, so there is still opportunity for those people who have not yet applied for relief. It's still there, and I think it's absolutely critical that we—all levels of government and the private and public sectors—get working together and take advantage of some of these supports that are out there.

My question is to the association first. Have you worked with any of your MPs on this?

[Jonathon Azzopardi]

We've actually been very fortunate. Our MPs have been very supportive.

[Terry Sheehan]

Excellent.

[Jonathon Azzopardi]

We were able to identify the issue early enough to allow us to engage with our local government and our MPs in Ottawa to come up with a solution. The problem is that the model is flawed. The model of offering loans to subsidize the government is not a business model that will have any positive effect, unless there's a guarantee. This is the truth. Unless there's a guarantee, manufacturers will not factor that price into discounting their costs. Without a guarantee, we will have to factor it in because our contracts are not for today. Our contracts are for long-term agreements, sometimes for a year, and sometimes for five years. Without the certainty that those will be removed, we cannot take the risk because steel is such a heavy factor in our manufacturing. In some cases, it's over 70%.

If you took 70% of your cost, and you started to add a 25% tariff, you could not survive that if that went beyond and you didn't get the money from the government. The model is flawed. It won't work.

[Terry Sheehan]

That's one tool, but more specifically—and I appreciate that and I understand what you're saying. With the remission orders, in certain circumstances you can apply to the government to get back some of that tariff, that 25% that you have spent, to make it whole.... Have many of your members applied for that?

[Jonathon Azzopardi]

We have one member who has been successful, but when I say “successful”, he actually hasn't received the money back yet. He's only been told that it's going to go through. So again, it's not a guarantee, and without that, we're talking about people who are trying to factor the cost into their models, and it's fractional.

I'll give you an example. He has submitted a brief to this group. At one point $3 million per month was what he was being hit with. He's receiving a fraction of that back, and he's waiting on the rest and being told that it's four to five months away. It's a never-ending date. He cannot factor that in. It's not enough.

I think people are forgetting that we're in a very competitive industry, an industry where 25% against our largest, most valuable commodity is not something that we can survive. We don't need loans. We can go get loans on our own, and that's what we see the government trying to push us to.

[Terry Sheehan]

So you would see more of a grant system in place that—

[Jonathon Azzopardi]

I believe there is only one alternative, and that is to successfully negotiate the agreement and get the steel and aluminum tariffs removed as soon as possible.

[Terry Sheehan]

I agree 100%.

[The Chair, Liberal, Mark Eyking]

We'll have to end on that note.

We're going to move over to the Conservatives.

Mr. Hoback, you have the floor.

[Randy Hoback, Conservative, Prince Albert, SK]

Do you want to go first, Colin?

[The Chair, Liberal, Mark Eyking]

Or whoever wants to can.

[Randy Hoback, Conservative, Prince Albert, SK]

Sure.

Gentlemen, thank you for being here. It's interesting to listen to. I think a lot of people in the general population are thinking that now that we've signed the USMCA deal, all our problems have disappeared; everything's good; everyone's happy and we dodged that bullet. Let's pat the Liberals on the back for doing such a great job.

In reality, what's changed? In your position, what's changed?

[Michael Bilton]

Well, nothing. We're talking about a business that we create. The material content of our product is 50%, 60% or sometimes 70% steel. We might as well be stamping car frames. The members of the Canadian Association of Moldmakers are the people who create the plastic injection moulds themselves. We're talking about upwards of 60,000- to 70,000-pound blocks of steel. Some are as big as a car. You can imagine two halves of a mould moving up and down. That's an awful lot of weight, an awful lot of steel and an awful lot of 25% addition to a cost that.... I'm Jonathon's customer at the tier one level, and my customer is Honda of North America. They're making sure that I'm watching my pennies to make sure that this guy is watching his pennies, and I already know that he's factoring in 25% on top of his cost, and now it's on my shoulders as a tier one supplier to the automaker. I have to bury that money somewhere.

[Randy Hoback, Conservative, Prince Albert, SK]

In your scenario—and we've heard this from our friends from Quebec here—there are very active U.S. economic development officers in Tennessee, Kentucky and places like those proceeding to attract businesses like yours down there. What kinds of incentives are they offering you today to actually say, “Why are you staying in Canada? You have nothing there.” Give us an example.

[Jonathon Azzopardi]

Actually, we won't give you specific examples, but I will tell you that we have been approached by the United States with greater frequency now than ever. What they're offering is 10 years. They're funding our capital expenditures. They're funding our bricks and mortar. They're giving us 10 years to repay that loan. This is something that we haven't seen in Canada for a long time. With the added cost, it's starting to become a good opportunity for us. Right now, until you get the agreement in place, you've basically taken all of our capital expenditures and given us three options. Whereas before Canada was the place where I was going to land, today we have to think very hard about whether we're going to land in one of three places: Canada, the United States or Mexico.

[Randy Hoback, Conservative, Prince Albert, SK]

In Quebec you mentioned the same scenario, in which you're actually looking at alternatives to Canada because you just can't do business here. You can't afford to produce here. What's happening in your area? What are you hearing?

[Jean-Denis Toupin]

In Quebec, customers have adapted and are temporarily willing to pay more for steel for future projects. We bid on projects and set prices, and customers agree to pay more.

My concern is about the major mining projects that require $1-billion investments, which will now cost $1.2 billion or $1.3 billion given the increase in the price of steel. Those projects could become unprofitable, disappear or be awarded to foreign companies.

[Evans Thibeault]

In our case, things are a little different. The fact that the price of steel is much higher here affects us directly. Some of our customers only invite Canadian manufacturers to bid, and that's fine because the price of Canadian steel is the same for everyone and the bids will be equivalent. However, it is important not to assume that most companies only invite Canadian manufacturers to bid; that's not true. They are now inviting bids from manufacturers around the world, particularly from the United States and China. In our area, large aluminum smelters have awarded major contracts to China rather than Quebec. In our region, we have seen convoys of trucks transporting all the finished products from the ports.

For us, it is almost impossible to compete now with such a significant imbalance in the price of steel looming ahead. We foresee that the future will be very challenging.

[Randy Hoback, Conservative, Prince Albert, SK]

I'll pass the time to Colin.

[The Chair, Liberal, Mark Eyking]

You have only 20 seconds.

[Colin Carrie, Conservative, Oshawa, ON]

I'll talk to our friends on video conference.

If I read you correctly, you were saying you're now operating a business where your profit—

[The Chair, Liberal, Mark Eyking]

Mr. Carrie, I'm going to have to cut you off, but there's one more slot. It might help you get your head together a little better, because this is putting you under the gun. Mr. Hoback got you jammed there, but that's fine. We'll give you time in a minute.

We're going to go to the Liberals now.

Madam Ludwig, you have the floor.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Thank you.

Thank you, gentlemen, for all of your testimony today.

I have only a couple of minutes, so I'm going to jump right to your recommendations about the strategic innovation fund. How do you see it being open to tier one and tier two?

[Jonathon Azzopardi]

First, the example of having recently increased it to $10 million was a huge hit to the SMEs. What we have found is that if you're going to approach an SME and make them achieve a threshold of $10 million for an investment, you're basically telling them we might as well put it abroad. The value is too high. Also, the focus needs to be opened up. Right now it's very focused on aluminum and steel producers. It's almost eliminating the manufacturers, the tier ones and tier twos. It needs to be opened up to aluminum and steel manufacturers and fabricators. Those two things right there would help, from what we see in southwestern Ontario, about 1,400 companies.

Basically, with those two changes, you eliminated 1,400 companies from being able to access SIF, just in southwestern Ontario.