International Trade Committee on Oct. 18th, 2018

[Michèle Govier]

They can certainly come to us.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Thank you.

I have a question for the CBSA.

I come from British Columbia, and Surrey is the nearest point to the border on the Pacific side. You hired those new officers mostly to deal with an accounting background, right? My interest is more in products that are moving across the border. What are the challenges that you are facing? Is there any suggestion or recommendation that you might have that we can do to make life easier for the CBSA?

[Doug Band]

Thank you for the question.

Nothing is coming to mind, quite honestly. From our standpoint, I think that we want to get people on the programs that will give them the relief they deserve. Sometimes it requires patience in working with us and working through a site visit, as was mentioned by the member. We send officers out to confirm the kind of traceability and the books and records that are required to get the duty relief program benefits, which was $385 million last year in benefits given to over 400 companies. That takes a little while.

We know it can feel like a burden to companies when they have so many pressures. If they just stay with us and be patient and work with us, then we know that it pays off in the end because we have the evidence that these programs can be of particular assistance to companies that are importing for the purposes of re-exporting.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

That wraps up your time, Mr. Dhaliwal.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Thank you.

[The Chair, Liberal, Mark Eyking]

We have time for one more MP.

For the Conservatives, Mr. Carrie, you have the floor.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

Basically, I've heard from stakeholders who are extremely concerned with the sense of urgency on this. They have said to us that nobody is listening. We did have the minister here the other day. I was actually getting quite upset, because it seemed that he was oblivious to the problems that were in the program.

As a committee we called people in, in June, because of the sense of urgency that we were hearing from the community. They have been in touch with us regularly over the last four months. This committee is doing a study on this. It seemed that the minister had no sense of urgency, that he really wasn't briefed to a point where he knew what we were hearing in committee.

One thing that I found quite promising, Mr. Halley, is that you mentioned that you have taken note of the testimony since Tuesday. Did the minister give you any direction as a department to monitor this committee and kind of keep up to date with what we were hearing on the ground?

[Patrick Halley]

I think I can speak for our division, where we certainly listen to and read the transcripts of the committee to make sure we are aware of the issues.

[Colin Carrie, Conservative, Oshawa, ON]

Is the minister aware of that? I don't know if you're aware, but we've heard in testimony that the thresholds currently in place for the strategic innovation funds are way too high for SMEs. These people are right on the precipice. We're hearing from companies right now that are seriously thinking of maybe relocating or shutting down business. Are there any plans currently in place to change any thresholds?

[Patrick Halley]

The strategic innovation fund is administered by Innovation, Science and Economic Development, so I cannot really speak to that. The minister did speak about...and we can certainly re-emphasize that we have certainly had a lot of back-and-forth with a lot of the SMEs we deal with—with respect to remission, for example—to make sure they are aware of the remission process and that we can work with them when they have requests.

As we outlined, 70% of the first wave of remissions announced last week were SMEs. We are really working with them. In the suite of programs the government announced at the end of June with respect to BDC and EDC and work-sharing arrangements...with all of this, I think there is a lot of interaction with SMEs.

[Colin Carrie, Conservative, Oshawa, ON]

I'll interrupt you there, because I heard the minister quote statistics on the loans. Earlier in the day we were told that the loans are useless to a lot of these companies on the ground. They need relief as soon as possible. The lag time of response worries me.

We had Minister Freeland here in May or June. She confirmed that at the G7 in 2017, I believe, Mr. Trump and Mr. Trudeau had a conversation, at which she was present, and Mr. Trump brought up this whole idea of tariffs. There was nothing in the budget that prepared us for this. The Americans mentioned in March this was going to be happening. They did give us a relief until June. Politically, it seemed there was nothing being done until after June in terms of consultation with industry and things along those lines.

We knew about this for over a year. March was when these were announced. When did you get political direction to come up with some type of relief program that was coming down the pipe? Was it in June—after the fact—that we were just kind of reacting to what was going on, or did you guys get information after the G7 back in June that we knew this could be a potential problem for us?

[Patrick Halley]

I can reiterate what we had done. When the first wave of 232 tariffs were imposed by the U.S. back in March, Canada was exempted. There were some concerns expressed with respect to trans-shipment, for example, and with trade enforcement in Canada. The government has responded with concrete measures with respect to new funding, changing some regulations with respect to origin, the trade—

[Colin Carrie, Conservative, Oshawa, ON]

Yes, I realize that—

[Patrick Halley]

All of that was done to address these concerns prior to the imposition of the duties by the Americans.

[Colin Carrie, Conservative, Oshawa, ON]

Yes, but there was no money in the budget for the programming and the preparation. Apparently we knew about the potential of this happening for well over a year. We knew quite clearly that March.... That was when the hammer came down. We had a bit of relief, but this is urgent for these companies. It just seems that the frustration is building with the non-communication, non-adaptability and non-flexibility in these programs. I'm worried that our manufacturing sector is going to be devastated within the next few months.

Maybe Mr. Morneau knows.... Maybe there is a deal that these are coming off soon and he's not so worried about it, but this is an urgent situation. I'd just like to emphasize that to the people we have on the ground.

[The Chair, Liberal, Mark Eyking]

There's no time for a response. You're over your time, so we'll have to end it there. That ends the second round and ends the dialogue with the MPs.

Thank you for coming, folks. These are challenging times for everybody if you're in the bureaucracy, and definitely if you're a business owner or employee out there. Again, thank you for coming.

We're going to suspend for eight minutes. We have two groups coming on via video conference. We will be back in eight minutes.

[The Chair, Liberal, Mark Eyking]

Welcome back, everyone. We're going to go into the second part of our study today.

Our next two witnesses are by video conference. One is all the way from the wonderful island of P.E.I., and the other is our neighbour to the south in Chicago.

This might be the first time you're in front of a committee, or maybe in front of our committee. I'll ask you folks to do a presentation. Try to keep it to around five minutes or less. That would be appreciated so that we can have good dialogue with the MPs.

Without further ado, we have Atlas Tube, all the way from Chicago, Illinois.

Mr. Zekelman, do you want to start? You have the floor.

[Barry Zekelman, Chairman and Chief Executive Officer, Atlas Tube Inc.]

Unfortunately, I've spent way too much time in front of trade committees and tribunals. Hopefully, we can resolve that.

Thank you for taking the time today. I'm pleased to be before the committee to help in this important task of examining North American and global steel trade issues. It's vital that the members of Parliament know the challenges the steel business faces today and the impact on Canadian employees and their families who are dependent on steel companies like our own.

I should mention that we are a steel consumer. Atlas Canada is part of the Zekelman group, Canadian-owned but with major operations on both sides of the border. We employ hundreds of people in our Harrow, Ontario, facility and are a vital part of the southwestern Ontario economy. We make mostly carbon steel structural tubing and piling, both critical to infrastructure projects.

I want to talk about two things: first, the direct impact on Atlas of the U.S. and Canadian reciprocal steel surcharges; and second, how offshore steel is being diverted to Canada because the U.S. market is effectively closed to imports.

Because of our extensive cross-border operations, we have direct experience in Canada and U.S. steel trade, but also in the damaging impact of low-priced offshore products that have been flooding into Canada over the years.

Whatever product we are talking about, the world is awash in excess steel. The OECD has been studying the problem of massive excess global capacity for years. Because of that, countries like China and others in Asia and elsewhere have to export, and this steel floats around the world looking for a home. Exporters and huge trading operations will seek any opportunity to liquidate these supplies at whatever price they can get.

Canada has been a target of these opportunists for many years. It's becoming worse now that the U.S. market isn't open. For example, the data shows huge increases in structural tubing imports into Canada after President Trump imposed his national security measures. The question is this: What should Canada do to protect our industry and the families that depend on us?

Anti-dumping and subsidy complaints are only a partial remedy. They are cumbersome and expensive, designed in an era when the steel business moved very slowly. Today the trade moves at an amazing speed. Deals can be done in a second, and there are multiple ways to circumvent these actions.

Canada needs to initiate rapid safeguard action for threatened steel products like HSS, following the ones that were just announced for seven categories of steel, but we need to move beyond safeguards—they are temporary—to permanent and more rapid measures to deal with the reality of unfair steel trade.

Although the implementation of safeguards is welcome, they're really just a feel-good measure. Canada is already awash in dumped steel and steel-intensive products. We have witnessed two of our biggest steel producers bounce in and out of CCAA protection for many years. This has been a direct result of dumped steel. Nothing else caused that problem.

I must say that as the single largest hot-rolled coil consumer in both Canada and the U.S., we purchase over 2.5 million tonnes of this steel a year. As a taxpayer, I'm appalled that this has happened. I have a tube plant in Welland, Ontario, that has been closed for three years while imported tube floods into the Canadian market. My tax dollars are going to bail out pensions and mills that could be economically viable if illegally dumped imports were stopped. Safeguards will still allow the current level of imports to flood our markets, while only charging duties on the amounts over the ridiculously high historical norm.

Here are my suggestions for some immediate steps.

We must implement quotas at levels such as, let's say, 30% less than the 2015 to 2017 average level for non-United States or Mexico countries. The tariff rate quota in the present temporary safeguard simply allows imports at present injurious levels, with foreign producers averaging their costs over total exports by paying 25% on their additional exports.

Also, implement reductions on all imported steel products to levels that will support full utilization of domestic output. Then provide a streamlined exemption system for products not produced in Canada or that fall in short supply, so as not to hurt our steel-consuming businesses.

In addition, we must agree to a two-way quota with the U.S. to immediately eliminate tariffs.

These measures will provide significant relief to both the steel industry and consumers so that businesses can continue to prosper, employ Canadians and make long-term investment decisions.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

I'm from Cape Breton, so I say that's the best island to visit, but P.E.I. is a close second. Good to see you, sir. Go ahead, you have the floor.

[Dave Clark, President, MacDougall Steel Erectors Inc.]

I want to thank the committee for extending this opportunity to MSE today. Here is a little introduction.

MacDougall Steel Erectors Inc., MSE, has been a family-owned business since its inception in 1998. MSE fabricates and erects structural steel and miscellaneous metals for our main plant in Borden-Carleton, Prince Edward Island. Our current markets are all across Canada and into the eastern United States. We currently employ approximately 150 people.

In terms of tariff impact on prices, currently MSE products crossing the border to the U.S. are not being affected by the U.S. tariff as we are shipping fabricated structural steel, not raw materials. The issue MSE has been experiencing is the rapid increase in costs of raw material and the availability of some products.

Over the last 12 months, steel prices have significantly increased by as much as 40%. As tariffs came into effect, all prices started to climb rapidly. We are an end-user of the steel, so our prices have gone up, but since we are not buying directly from the United States, we do not have the invoices/support for the direct amount of tariff that we ended up covering. We are somewhat confused about how the tariff is being collected by the Canadian government and how it is to be redistributed. It seems we are paying the higher price but are unable to get compensated.

In terms of direct negative effects to MacDougall Steel, it was steel prices quickly moving higher earlier in the year that affected our company the most. This had a major negative effect on both profitability and cash flow.

There was an effect on profitability. We had jobs and signed contracts based on current steel prices. Once the price of steel started to increase, we took a hit directly. We couldn't pass it on to customers as we had already received purchase orders or contracts that were signed. In the case of raw materials for a couple of projects, just to give an example, on two or three projects our cost for materials alone would have been over $100,000 higher on each project than what we had in the bid, which was a direct hit to our bottom line.

Another aspect is cash flow. When the prices started to climb, we had to lock in as many of our steel prices as we could so that we didn't continue to bleed our job profits. Once we committed to buy, our suppliers wanted payment in 30 days. Some of these jobs were months away from hitting the shop floor, and we typically cannot bill a customer until steel is on site, so we had to cash flow millions of dollars more in inventory than we usually would. Prices were so volatile for a while that we had to tell customers their quote was only good for one day.

Uncertainty within the marketplace had an effect. There is still a lot of uncertainty in the marketplace with the tariffs. We were hoping the steel tariffs would have been dealt with as part of the NAFTA renegotiations. We recently expanded our shop to do more work in the United States before the tariff talks started. With our increased overheads and capacity, we need to be able to do the work in the United States to stay competitive.

As for future work, we are trying to keep jobs within our company. The downturn in the oil markets and the limited number of significant industrial projects on the go have been a significant challenge, as current capacity in Canada is larger than the demand. With the oversupply and lower demand within the Canadian market, margins have significantly decreased and profitability is suffering. We are quite disappointed to hear that the B.C. LNG project might be exempt from the current import duties on FISC, or fabricated industrial steel components. We feel Canada has the resources and knowledge to fabricate these modules, and Canadian steel fabricators need a project like this. There could be a couple of more LNG projects announced, and once the government provides the exemption for one project, they will have to provide it for all the projects.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Clark. These are challenging times, to say the least.

We're going to go to dialogue with the MPs now. We're going to start with the Conservatives. Mr. Hoback, you have the floor.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Thank you, gentlemen, for being here this morning. My first question is to Mr. Zekelman.

You talked about your two facilities being closed in Canada because the market just didn't allow them to be open. Why aren't they opening now? We've heard from Mr. Clark and other guys that they're having a hard time securing sourced steel here in Canada. What will it take to open these two facilities?

[Barry Zekelman]

First off, it's one facility that we have closed in Welland.

[Randy Hoback, Conservative, Prince Albert, SK]

Okay.

[Barry Zekelman]

Our other facility is running. The problem is that he's sourcing steel out of Canada. Our market that we would supply out of that Welland plant is flooded with imports from Thailand, Vietnam and Korea. Until those imports disappear, we don't have any volume to open that plant.