Mr. Chairman, members of the committee, thank you for the invitation to testify before you today.
ASW Steel Inc. is a specialty steel manufacturer located in Welland, Ontario. We are a wholly owned subsidiary of U.S.-based Union Electric Steel, a division of the publicly traded Ampco-Pittsburgh Corporation.
ASW provides 125 full-time, high-quality jobs in the Niagara Region, where manufacturing jobs are scarce and unemployment rates are the third-highest in the country, running 25% above both the national and provincial averages. These good jobs and the commerce they deliver bring fourfold downstream economic benefits to Canadians.
ASW is the only stainless steel-producing melt shop in Canada and one of only three such shops supplying stainless steel ingots throughout North America.
Commencing operations in 2012 on the site of the former Atlas Specialty Steels, ASW produces specialty steel primary products for forge shops and rolling mills. Of note, ASW will supply the stainless steel required for the production of nuclear end fittings on the Bruce Power nuclear refurbishment project. Also, we have partnered to run prototypes for the production of corrosion-resistant stainless rebar for use in bridge construction throughout Canada. Prior to ASW, these products had all been imported from abroad.
Since inception, ASW has experienced exceptional growth, reaching annual sales of $100 million in less than five years. Unfortunately, the bulk of that growth has come through the U.S. market.
With that as a backdrop, it would be an understatement to say that the imposition of 25% tariffs on Canadian steel under section 232 of the Trade Expansion Act is having a significant and adverse impact on ASW's business. Our U.S. customers cannot afford to pay outlandish tariffs on steel that was priced fairly to begin with, and margins are too thin for us to absorb such sums. Consequently, orders have been cancelled and inquiries have slowed.
While ASW has been proactive in finding new Canadian opportunities, customer approval processes take time to mature. Countermeasures are a welcome buffer. However, duty relief and drawback programs have provided temporary relief for steel users while adding little near-term benefit for ASW. The remission process is complex, and as capable government staff work hard to satisfy the conflicting needs of steel producers and users alike, supply chains are disrupted and our businesses are suffering. The steel boom being boasted south of the border is not evident at home.
In this difficult period of adjustment, we seek access to appropriate government support to prevent layoffs and other long-term consequences. While a speedy resolution to the trade impasse is the ideal solution, at this point in time our only recourse is to redirect all attention into the Canadian and international markets. To do that, we need time and our government's help.
Specifically, ASW recommends the following measures to help mitigate losses, encourage domestic consumption, and offer the time needed to adapt.
First, provide direction to all government procurement agencies to source only Canadian melted steel.
Second, provide "buy Canadian" incentives for steel melted in Canada.
Third, redistribute tariff funds to injured companies in the form of settlements for losses brought on by this illegal trade action.
Finally, provide grants to allow small and medium enterprises to adjust their product offering to satisfy Canadian needs not currently supported with domestic production.
On the last point, ASW has looked into the government's strategic innovation fund, but we fail to meet the thresholds prescribed in the program. We are preparing applications anyway and are hoping to erase these barriers to participation.
We're encouraged by the USMCA agreement. However, we fear that the U.S. trade representative favours quotas in lieu of removing tariffs. Restrictive quotas will limit growth and inhibit investment in Canadian companies. It is our opinion that any North American company prepared to invest in facilities on this continent should be rewarded with unfettered access to all of its markets. ASW strongly suggests that the government work diligently to secure a complete exclusion from the 232 actions for North American-owned entities. This must be a priority.
To conclude, Mr. Chairman, we thank the government for acting swiftly on the U.S. tariffs on steel, and we applaud the implementation of retaliatory tariffs and safeguards preventing an influx of redirected foreign steel. These have been critical and effective actions in the short term.
In the long run, however, the U.S. remains an important export market for Canadian steel producers. As tariffs continue into 2019, we will find ourselves in increasing difficulty. ASW has had the support of patient owners, but that patience is not without limits. The potential for Canada to lose a business like ASW, the only one of its kind, is real. With its 125 jobs and fourfold downstream benefits, such an eventuality would be a serious blow to an already beleaguered Niagara Region.
Thank you very much for your time. I would be pleased to take any questions you may have.