Evidence of meeting #126 for International Trade in the 42nd Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was customers.
A recording is available from Parliament.
Liberal
The Chair Liberal Mark Eyking
Thank you. Those were good comments and good dialogue with the MPs.
Witnesses, thank you very much for coming here today, with your busy schedules, and for being away from your companies and your employees.
We're just going to suspend for 10 minutes, folks, so be quick. We'll come back to a new slate of witnesses.
Liberal
The Chair Liberal Mark Eyking
We're going to continue today's meeting on the impacts of tariffs on Canadian businesses, companies and workers.
We have some witnesses here with us today from the St. Thomas Economic Development Corporation, Beer Canada and Ellwood Specialty Metals.
Welcome, gentlemen. Try to keep your presentations under five minutes so that we can have a good dialogue with the MPs.
Without further ado, we're going to start off with St. Thomas EDC.
Sean, you have the floor.
Sean Dyke Chief Executive Officer, St. Thomas Economic Development Corporation
Thanks very much. It's a pleasure to be here.
In 2008, the city of St. Thomas was often used as the poster child for the recession that took place, and we've really rebounded back in the decade since then. We've seen all of those buildings that were vacated by companies like Sterling Trucks, Lear Canada and A. Schulman Canada get filled by other companies that have come from various places: from Canada, from the U.S. and from overseas.
We've been extremely fortunate to grow back from that point. However, as Canada continues to shift to a more service-oriented economy, which has been happening over the last few decades, I think it's important to recognize that a lot of that growth is happening primarily in the larger centres. In small cities like St. Thomas, we're effectively a very strong representation of how manufacturing affects small communities. In fact, with our population of 40,000 and our labour force of 20,000, 5,000 of those 20,000 jobs are in the manufacturing sector. If you look at that as 25% of our labour force that is directly affected by manufacturing and another several thousand that are impacted indirectly, you will see that there's a significant impact when you impose trade barriers.
I know that it's not the fault of anyone in here or anyone in our government, but it's a crazy time that we're working in right now. It has created a lot of challenges for our local businesses.
In our region, we use the focus on manufacturing as a tool to try to attract more manufacturing, as people look to clusters. We work with a group called the Southwestern Ontario Marketing Alliance, a member-based organization of seven other municipalities that are very much like St. Thomas. Through that group, we've recognized that we have some impressive foreign investment in our area, primarily in the automotive sector. We have the largest Japanese manufacturing investment in all of Canada in our little region. Any of the news around auto tariffs is always scary for regions like ours, where manufacturing is the bread and butter of our communities.
I'll talk a little bit more about the concern that we have locally. I spoke with one of our local businesses, and I'll give you just a very brief summary of some of its concerns. They're probably not much different from some that will be shared a little bit later on. This is a company whose main product is made from base metals—aluminum and steel. Because it has a U.S. parent company, it's required to purchase the majority of its products from the U.S.
As a result of the increased demand for domestic steel in the U.S., steel suppliers have taken the opportunity to raise some of their prices by as much as 20% over 2017 levels. Given that much of that product was already sold before then, it's up to the company now to absorb that cost. The border crossings have slowed down for this company, and the broad range of input subject to tariffs has significantly increased its costs, lowering its competitiveness and forcing it to question the feasibility of its Canadian location. It has even become impossible, in some cases, to have intercompany transfers of technology, of components, for anything from service to new development. That medium-sized company—say 30 to 50 employees—represents an economic impact of tens of millions of dollars in Canada, and it's only one example. We have dozens more in St. Thomas that are just like that, some larger and some smaller, and across our region there are many more like that.
In my role, I have the opportunity to speak with a lot of businesses, and the one thing that they're looking for is stability. That's true for tariffs, for the Canadian dollar and for trade agreements. Trade uncertainty is a huge challenge for companies in our region and across Canada. While we recognize that there's not a lot that we can do about it at the local level, what we want to do is to just try to voice their feelings to groups like yourselves and ensure that they can continue to do what they want to do, which is to invest in Canada.
Thank you.
Liberal
The Chair Liberal Mark Eyking
Thanks, sir.
You mentioned some of the big companies. How many small and medium-sized companies do you have in your region?
Chief Executive Officer, St. Thomas Economic Development Corporation
In our region or in St. Thomas...? In St. Thomas, we have well over 100 small and medium-sized companies. I'm sure there are hundreds more across the region.
Liberal
The Chair Liberal Mark Eyking
Okay. Thank you.
We're going to move over to Ellwood Specialty Metals.
Mr. Heath, you have the floor.
Dave Heath Vice-President, Ellwood Specialty Metals
Good afternoon, Chairman and members of the international trade committee.
On behalf of Ellwood Group, thank you for the opportunity to present our concerns on the impacts of the U.S. section 232 steel duties and the unintended consequences of Canada's response.
My name is Dave Heath. I'm the vice-president of Ellwood Specialty Metals. I was born in Sarnia, and I've worked in the steel industry since I graduated from college. I started Ellwood Specialty Metals about 15 years ago. We have grown and developed a personal relationship with our customers in the Windsor area, but for the first time in 15 years since I've been running the business, our business is struggling and facing severe headwinds.
Ellwood Specialty Metals has been a uniquely integrated American and Canadian company since 1990. We are a proud supplier of the Canadian and American mould and tool market, in products that drive the transportation industry. We produce parts for operations across Canada, including General Motors in Oshawa, Ford Motor Company in Brampton, Honda engines in Simcoe, and Chrysler operations in Windsor and Brampton.
lt is unfortunate to report that the Canadian surtax is having adverse impacts on Ellwood Specialty Metals and our Canadian clients. Ellwood's business in Canada has significantly decreased since the surtax on July 1, 2018. A vibrant and competitive Canadian steel market is at stake.
We are working within the government processes to seek remission of the surtaxes on select specialty products in order to maintain Canadian jobs and our unique value added to the Canadian mould and tool market.
Today we operate in a facility of about 40,000 square feet, and we have a little over 20 well-paying, full-time jobs at our facility. Our facility is a prime example of the small and medium-sized businesses that make up the steel industry in Ontario. We have long-term contracts and client relationships that span decades.
Ellwood Specialty Metals is a uniquely and highly specialized product in Canadian business that no one else in Canada produces. What we do is not easily replicated. The 25% surtax on these products has removed the competitive advantage for a lot of our Canadian clients who rely on us. Our Canadian customers can no longer obtain some of our specialty products that they need at fair pricing.
The unintended consequences of the Canadian surtax are that foreign competitors with no Canadian footprint now have the advantage. We are part of a broader Canadian value chain. About 70% to 75% of our steel is processed by Canadian shops that then export the moulds and tools back out of Canada. These exports are no longer competitive and are at risk because of the Canadian surtax.
One example of the Ellwood product is our H grade of steel, or H13 modified grade, which has no competitive equivalent here in Canada. It is designed for the industry. lt is a high-quality, die-cast steel that is used for liquid injection moulds. One of the bigger products that comes from it is transmission housings, which go basically in every North American vehicle. All of these parts are vital to the automakers across Canada.
Without the ability to provide reliable and efficient steel products, our long-term customers are looking at European competitors as an alternative. Canadian jobs and future investment are now at stake.
We understand that the Canadian government is working hard to bring these tariffs to an end and that the government has taken concrete steps to support businesses and workers. We would like to thank you for your efforts on that. However, we remain hopeful that the negotiations between Canada and the U.S. will bring these tariffs to a swift end.
Ellwood must be realistic and recognize that we may be facing a long uncertain future. That is why we're here today asking for a remission for the Canadian surtax on select specialty products to save some Canadian jobs in our unique value added to the Canadian mould and tool market.
ln closing, your leadership is urgently needed to save the steel industry in southwestern Ontario. Canadian jobs, and small and medium businesses are at stake.
Thank you.
Liberal
The Chair Liberal Mark Eyking
Thank you, Mr. Heath. I have a quick question on Ellwood.
You mentioned transmission parts as being a big one for you.
Liberal
Vice-President, Ellwood Specialty Metals
Again, they make them for all cars. Transmission housings also go into trucks, just about any SUV, and even commercial vehicles and stuff like that.
Liberal
The Chair Liberal Mark Eyking
Good. Thank you.
We're going to go to Beer Canada.
We had the barbecue guys earlier, so now we have the beer guys.
President, Beer Canada
Mr. Chairman and members of the committee, thank you for the invitation to contribute to your study on the impact of tariffs on Canadian businesses, companies and workers. To that list, I would also add Canada's 10 million beer drinkers.
Beer Canada is the national voice of the domestic brewing industry, an industry that directly employed 14,800 Canadians and paid $1 billion in salaries and wages in 2017. Our 50 members are drawn from all 10 provinces and one territory, operating 62 brewing operations that together produce 90% of the beer manufactured in Canada.
Beer is the leading beverage alcohol category, accounting for 41% of retail dollar sales and 73% of the GDP generated by all domestic beverage alcohol producers combined. The large positive economic impact beer has on Canada's economy stems from its still being a very local industry. Of the beer sold in Canada, 85% is made here in Canada.
Our last estimate on the cost of Canada's countermeasure tariffs on aluminum beer cans, put in place on July 1, is $20 million to $25 million on an annualized basis. The federal government announced earlier this month that it would provide relief from Canada's countermeasure tariffs on a number of products, including aluminum beer cans. This is a very positive development for our industry and very positive for our customers. The tariff costs on cans were a concern for brewers who already are having to pass onto consumers $25 million in additional federal excise tax as a result of two back-to-back tax increases since budget 2017.
While the move to provide relief from Canada's countermeasure tariffs on beer cans is very encouraging, there is more work to be done. Beer Canada urges the committee to examine the issue of possible irregularities in the aluminum market, which appear to have inappropriately inflated the price of aluminum over the past 11 months. My brewing industry colleagues in the U.S. are urging their government to investigate this issue as well.
The sale of beer in aluminum cans has grown in recent years to now make up the largest share of packaged beer sales. A decade ago, bottles accounted for 65% of total packaged domestic beer sales. Cans accounted for just 35%. The ratio is now reversed. In 2017 cans made up 62% of sales.
This transition, a response to changing consumer preferences, has altered our supply lines and the packaging lines inside our breweries. It has, as a result, increased our sensitivity to changes in the price of aluminum. We pay attention to that now more than ever before.
The 355-millilitre aluminum beer can—a 12-ounce container the industry refers to as the “standard can”—is the most popular container size. In 2017 Canadians purchased 2.5 billion cans of beer in the standard can size. Canadian brewers rely on both Canadian and U.S. sources for their standard can requirements. All other can sizes, including the 473-millilitre tall can, are sourced from the U.S. They are not manufactured here in Canada at this time. In 2017 Canadians purchased half a billion cans of beer in the tall can, up 66% from 2013. The tall can is a popular container, especially amongst small brewers.
Brewers, as is the case with all purchasers of aluminum, are encountering pricing irregularities that market observers, including some members of the United States Congress, believe may be a result of unlawful pricing arrangements by aluminum producers, merchants, traders, banks and others. These pricing irregularities for aluminum appear to stem from the Midwest transaction premium.
The Midwest premium is charged to all end-users of aluminum in Canada and the U.S. and is supposed to account for the cost of storage and transportation of aluminum to end-users. This premium has increased sharply in recent months, despite the fact that logistical costs of sourcing metal from around the world have not changed significantly. From November 2017 to now, the premium has more than doubled to over 20¢ per pound. The Midwest premium is set by ratings service S&P Global Platts. It claims that the premium is based on transactional prices, using actual spot transactions between customers and suppliers.
Each end-user, such as brewers, believes that the process is not consistently followed. There is no transparent benchmark that can explain or validate the reference price. Some market participants believe that the premium may be set, not by strict adherence to using transactional data but by a co-operative alignment between aluminum producers, merchants, traders and banks in order to unlawfully fix the reference price.
Canada's brewers and their customers thank the federal government for recognizing the negative impact countermeasure tariffs on aluminum beer cans were having on our industry and on Canadian beer drinkers. The government consulted and took appropriate action, providing necessary relief to help protect the competitiveness of Canada's brewing industry. For the same reason, we ask the committee to examine the issue of possible irregularities in the aluminum market by investigating how the Midwest transaction premium is developed and applied to aluminum end-users.
Thank you very much for the invitation to be here today. I'd be happy to answer any questions.
Liberal
The Chair Liberal Mark Eyking
Thank you, sir.
I know you're just speaking for the beer industry, but I would assume the other beverage industries have the same challenges with the cans.
Liberal
The Chair Liberal Mark Eyking
Okay, we're going to go right to dialogue with the MPs. We're going to start off with the Conservatives.
Mr. Allison, you have the floor for five minutes.
Conservative
Dean Allison Conservative Niagara West, ON
Thank you very much, Mr. Chair.
Mr. Dyke, you had an election last Monday night. You elected a new mayor. My question is, are you going to be able to work with that new mayor?
Chief Executive Officer, St. Thomas Economic Development Corporation
I think we could make it work.
Conservative
Dean Allison Conservative Niagara West, ON
I had to get that on the record anyway, so I'll make sure I report back that so far you're optimistic, but it's still early days. We'll go from there.
Conservative
Dean Allison Conservative Niagara West, ON
Mr. Preston is now the mayor of St. Thomas, so there you go.
Let's go back now, Dave. Thanks for coming today and talking about some of the issues you have. When we talked to people this summer, they were saying, “Listen, for three or four months we can handle this, but we can't keep going much further.” You alluded to this in some of your remarks.
Talk to us about how urgent it is to get this resolved in terms of what it means to your business and the businesses of those in your space.