International Trade Committee on Oct. 30th, 2018

[The Chair, Liberal, Mark Eyking]

Good morning and welcome, everyone, to the international trade committee.

We are going to continue with our study on the impacts of tariffs on Canadian businesses, companies and, of course, workers. We've had quite a few meetings so far. We've had quite a few witnesses and workers' groups. We've received a lot of good information and had good dialogue with the MPs.

We're going to start our first half. Colleagues, we'll probably do 45 minutes in one round. We have three stakeholders today.

By video conference, all the way from Burnaby, British Columbia, good morning, gentlemen.

I always start off with the video conference first, in case we have a jig up or something happens. We're going to go right to British Columbia.

Welcome. You guys are with UBS Industries. We try to keep it under five minutes for each stakeholder. If you can, we'd appreciate it. We're not that hard on you, but it gives us more time for dialogue with the MPs.

Go ahead, folks.

[Andrew Mindell, President, UBS Industries]

Thank you.

Good morning. My name is Andrew Mindell. I am the president of UBS Industries. Sitting next to me is Jim Kerr, our general manager.

Our company is a specialty steel distributor and agent that is located in Coquitlam, British Columbia. The product we're here to talk about today is known as in-line galvanized tube. It's a specialty tube product that is essential to small and medium-sized businesses across western Canada, representing over 2,000 jobs. The product is used by playground manufacturers, covered shelter manufacturers and farmstead equipment manufacturers, to name a few.

Today, we're here to answer any of your questions, but I wanted to share with you our journey through the steel tariffs process, as a small business from British Columbia representing many other small businesses across western Canada.

When the steel tariffs by the United States were first announced, our business was unaffected, as we are an importer of steel from the United States and not an exporter. Many of our customers are exporters, but they export finished products that were not susceptible to the tariffs.

Shortly after America imposed their tariffs, Canada's counter-tariffs were announced and our in-line galvanized tubing was captured in the original counter-tariff proposal. Despite being an extremely specialized niche steel product, in-line galvanized tube was captured under the original counter-tariff proposal as category 7306, which captures iron or steel—excluding cast iron—tubes, pipes and hollow profiles, which are not seamless.

My understanding is that imports from the United States into Canada, within this category, equate to approximately $975 million annually. Between ourselves and our customers, our imports would represent an extremely small fraction of this annually. Needless to say, we are a small fish in a big pond. Our product is so unique that it is only available from a United States manufacturer. It is not available in Canada or from any international trading partners.

As a business, the counter-tariff measures stood to become a major issue for us and our customers. For most of our customers, in-line galvanized tubing is the major material input cost in the manufacturing process. The result of the countermeasure was such that our customers would be at a 25% material cost disadvantage, as compared with their U.S. competitors, and the U.S. competitors would be able to export tariff-free into Canada because they would be exporting finished product.

The effect of the counter-tariff, as it related to our specific product, was such that U.S. companies were being strengthened and Canadian companies were being placed at a competitive disadvantage. This put us and our customers in a terribly uncomfortable, uncompetitive position that would see no harm to the U.S. mills, given that the dynamic of the supply was only available in the United States.

As a company, we were very understanding of Canada's position to implement the counter-tariff, but felt that we were likely an unintended consequence. Having no political affiliation and being a small business in Coquitlam, we simply took Minister Freeland's advice, through the media, to submit a request for exclusion.

As part of this process, we reached out to our local MP's office, which quickly put me in touch with Joyce Murray. Joyce Murray led us to Global Affairs in Ottawa, which led to us Ian Foucher in the Department of Finance. Ian was responsive and sympathetic, but was very honest that there would likely be some unintended consequences, when the final counter-tariff list came out.

Unfortunately, in-line galvanized tube was still captured on the final counter-tariff list, but we received a follow-up phone call, shortly after, to let us know that there was a remission process that we could apply to.

We immediately followed the instructions of the remission process and kept in close touch with a number of members in the finance department, all of whom were extremely responsive and understanding of our situation. They consistently challenged our case, to ensure the facts we were presenting were correct, and they gave us the opportunity to challenge some of the facts that they were presenting. We were put through a very thorough process.

Ultimately, we reached a remission for our product this past month.

Prior to receiving the remission order, I repeatedly commented to our customers, employees and friends how impressed I was with how the government was treating us and our issue. As I mentioned at the outset, we have no political affiliation. We simply followed the path that is set out for a citizen, and the path worked extraordinarily well and was fair and transparent.

I must commend the government on how well they functioned throughout the entire remission process. As a citizen and a business person, I would say this process far exceeded our expectations. We are extremely grateful for receiving the remission, and on behalf of our customers and the 200-plus employees that together we represent, we simply want to thank the government for the fair and thorough process we experienced.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to move on to Onward Manufacturing. Go ahead, gentlemen.

[Colin Kirvan, Vice-President, Product Management, Onward Manufacturing Company Ltd.]

Thank you.

Good morning, Mr. Chairman and members of the Standing Committee on International Trade. My name is Colin Kirvan. I am the vice-president of product management at Onward Manufacturing Company. I'm joined today by our president, Terry Witzel.

Onward is a third-generation, Canadian-owned company in the Waterloo region since 1906. At our Waterloo facility and at our U.S. facilities in Indiana and Tennessee, we manufacture high-quality gas barbecues sold under the Broil King brand. Currently, we directly employ approximately 475 people in Waterloo and support significantly more jobs in Canada. These are well-paying, value-added jobs.

Although other companies manufacture barbecues in Canada and the U.S., our company's extensive vertical integration sets us apart. Other well-known Canadian and U.S. companies import a significant percentage of their finished products from China, or import major components that then are assembled into finished barbecues here. Our company operations are different. Our barbecues are manufactured in North America by our skilled North American workforce, with quality North American steel. In Waterloo, we source Canadian steel where possible and make every effort to support our Canadian suppliers.

Since 2008, our company has invested significantly in its North American footprint, leveraging NAFTA to build a truly global business. Today, we ship our Canadian-made barbecues to over 40 countries around the world. Between 2008 and 2017, Onward has more than doubled its production and sales, with significant growth in both the U.S. and Europe, yet Onward's continued growth and viability are under duress. The pressure is twofold: trade tensions and tariffs, and China's unfair trade practices.

Current Canada-U.S. tariffs are driving up prices of our inputs in North America and threatening our supply chain. The pressure heightened when the U.S. imposed a 25% tariff on steel and a 10% tariff on aluminum under section 232. Things were made worse when the EU and Canada responded with retaliatory tariffs.

Our steel costs are up nearly 18% this year alone. That is a substantial increase that our competitors, who use of Chinese steel and process finished goods or parts in China, do not contend with. In this climate, it is difficult for a vertically integrated Canadian company with substantial steel inputs to compete.

I'll turn here to my second pressure: China's ongoing trade advantage. By subsidizing its steel industry, China gains a huge trade advantage, one that has decimated North American barbecue grill production. We have seen numerous companies fold or move production to China over the past 15 years.

China's subsidized steel and manipulated currency enables the Chinese to export finished goods around the world at lower than fair market value. Canada's 8% tariff on Chinese barbecues is insufficient to address these unfair trade practices. A more robust tariff of 25% would help level the playing field and fit with Canada's policy of ensuring that social, environmental and labour rights are enshrined in our trading relationships. When China starts trading fairly, the tariffs can be eased. Unless we take action to protect Canadian steel processors, the local consumers of Canadian steel, they will eventually move to China.

Finally, I'll point briefly to how we can leverage this volatile trading arrangement. Due to the recent 25% tariff the EU has placed on U.S.-made barbecues, Canada and China are presented with an opportunity. Our preferred option is to move this production to Canada; however, the China option is far less capital intensive and more cost effective. However, with the support of the Canadian government, we could leverage the made-in-Canada brand and grow our Waterloo operations in order to supply the growing EU market and create 200-plus direct Canadian jobs.

This is a real opportunity for Canada to support companies such as ours to scale up and grow jobs and exports here at home, by keeping material costs competitive and spreading funding directed to steel producers downstream to steel processors.

In conclusion, we would urge the committee to recommend the elimination of retaliatory tariffs and to not impose further tariffs on imported steel; to recommend action to level the playing field for Canadian-made products, namely an increase of the 8% tariff on Chinese-made barbecues to 25%; and to recommend action to support small and medium-sized downstream steel processors to grow Canadian jobs and exports.

Thank you very much. We'd be happy to answer any questions you have.

[The Chair, Liberal, Mark Eyking]

Thank you, sir. I have to confess that when I brought my Broil King home, I didn't know that it was made in Canada.

[Colin Kirvan]

That's great.

[The Chair, Liberal, Mark Eyking]

I felt really good about it when I saw that it was made in Canada. I think a lot of Canadians don't realize how successful your business is. Also, it's working very well. I didn't blow it up yet.

[Colin Kirvan]

That's good.

[The Chair, Liberal, Mark Eyking]

We're all doing well.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

He overcooks the steaks, though.

[Voices]

Oh, oh!

[The Chair, Liberal, Mark Eyking]

Did you say how many employees you have?

[Colin Kirvan]

We have 475 in the Waterloo region.

[The Chair, Liberal, Mark Eyking]

Thank you.

We'll go to Central Wire Industries.

Mr. Dodds, you have the floor.

[Thomas Dodds, Vice-President, Commercial, Central Wire Industries]

Thank you.

Good morning. My name is Tom Dodds. I'm vice-president of Central Wire Industries in Perth, Ontario, where I've worked since 1998. It is my privilege to represent not just our company but our fellow employees in discussing the impacts of tariffs on our business.

I'll give you a bit about our company. Production began back in 1955 to manufacture fine diameter wire used in the weaving of fabric in the paper industry. In 1979, a group of Canadian investors, along with senior management, acquired the company we now know as Central Wire from Albany International. The same original family of investors continued to participate, along with current management, as the principal private shareholders of our company.

Now, in 2018, here in Perth, Central Wire Industries manufactures stainless steel wire of all types, grades, sizes and packages for all applications in automotive, aerospace and industrial markets. For almost any market you can think of, we're producing the product. In 2017, our location in Erin, Ontario, unfortunately was forced to close, leaving Central Wire Perth as the last manufacturer producing stainless steel wire in Canada.

To manufacture the many grades of stainless wire that we do, we buy a product called stainless steel rod, which is hot-rolled, annealed and pickled into regular round coils. Basically, picture a rod with a diameter the size of your finger. We take that and draw it down as fine as your hair, depending on the application.

In this discussion, we've been well-immersed both on our supply chain and on our customers, because our biggest cost is stainless steel rod and, of course, our livelihood is stainless steel wire.

Central Wire employs more 80 people in Perth, Ontario, and continues its significant contributions to the community, both in direct employment and in other community-oriented activities. Perth is not a very large town, but it's a pretty town.

Since February of this year, the topic of steel and aluminum tariffs has dominated and consumed many hours of many days in our stainless steel market. The resulting impact since the U.S. imposition of section 232 has had a negative effect on our Canadian operations, our customers and our vendors. The two primary negative effects, of course, are increased costs in terms of stainless steel wire going to the United States and the diversionary tactics of those that once exported to the U.S. and are now looking for other markets.

Specifically with respect to the cost, the United States is an important export market for us. The imposition of the 25% duty on Canadian exports to the U.S. has been very harmful. Our U.S. customers will simply not accept such a significant increase. We're forced to absorb the cost or to try to find other markets or customers. The Canadian market is simply not big enough for all the production that we can produce.

Increased exports to Canada can be the direct result and consequence of the U.S. imposing the 25% tariff on products going into the U.S. Historically, they were bound for the U.S. and now these people are looking for places to bring their products. I'm sure you've heard this story from many other people. At the end of the day, we can absorb but can't compete with some of the low pricing that was once heading to the U.S. and is now reaching our borders.

The impact of section 232 on motor vehicle parts is a hotly debated topic these days, so I want to touch on that briefly in terms of some of the markets that we produce for in the automotive industry. Stainless steel wire is used for the manufacture of airbags, exhaust systems, seat frames and all kinds of components, fasteners and springs in your automobile. Our customers are unwilling to pay for those 25% increases in our manufacturing costs. If we want to sell to our U.S. customers, we have to find a way either to absorb that cost or, as I said, find another market or another home for our products.

As a result, this is not a profitable situation for Central Wire Industries. As offshore imports of stainless steel wire become prevalent in Canada, we're going to continue to face increased competition for our historical customers. Imports are gaining traction in the Canadian market and they're certainly a threat to us in future sales as well.

Our manufacturing facility and our employees in Perth are now at a very critical crossroads in our long history. We remain anxious for a potential resolution on section 232. We are also very hopeful and very supportive of the recent announcement the government has made on safeguard actions. We plan to participate fully in that process.

We believe that in light of recent trade measures globally, particularly in the U.S., it is vital that the Canadian government take certain action to ensure that the Canadian producers are not forced to shut down Canadian production.

Thank you very much for your time.

[The Chair, Liberal, Mark Eyking]

Thank you very much, Mr. Dodds.

It's a very challenging time for sure, for many companies and employees, and we've heard that quite a bit from our witnesses. Thank you for coming.

I'd like to do some welcoming here of some visitors to our committee today. From across the Atlantic Ocean, we have a crew here from the European Union. We had the pleasure to have an informal meeting with them beforehand. They are from the European Economic and Social Committee.

Again, welcome, folks, to the Canadian international trade committee.

I'd also like to welcome MPs who are visiting here. With us today we have MPs Sikand, Morrissey, Wong and Trudel.

Welcome. You're going to find out that this is one of the most exciting committees on the Hill.

[Terry Sheehan, Sault Ste. Marie, Lib.]

You'll never want to leave.

[The Chair, Liberal, Mark Eyking]

Let the excitement begin.

Let's have some dialogue with the MPs and witnesses. We're going to start with the Conservatives.

Ms. Wong, I think you and Mr. Carrie are going to share the time. Go ahead.

[Alice Wong, Richmond Centre, CPC]

Thank you, Mr. Chair, and thank you for the warm welcome.

As the member of Parliament representing Richmond, British Columbia, I'd like to welcome our witnesses from Coquitlam, British Columbia.

First of all, I would like to thank you for creating those 2,000 jobs. Definitely this is a difficult time, and you have been lucky enough to be able to sail through troubled waters. You say that you think you're okay as of right now.

I can assure you that you don't have to be politically affiliated with any party in order to have your voices heard. It is the responsibility of all governments, whatever stripe they represent, to protect Canadian jobs. It is our job to make sure the SMEs survive, because small and medium-sized businesses actually create the most jobs.

I'd like to ask a question. Earlier, you mentioned that this 25% in material costs will have a great impact on your customers. Can you expand a bit on that side, Andrew and Jim?

[Jim Kerr, General Manager, UBS Industries]

The major input for their product is steel. With the 25% increase in their material costs, it impacted their business and the cost of their finished goods went up dramatically, certainly not by the 25% but the majority portion of it did go up.

[Alice Wong]

You mentioned the 2,000 jobs created by your own company. How about your customers? Do you have any idea of how many jobs out there will be affected?

[Andrew Mindell]

The 2,000 jobs is a representation of our customer base and ourselves. They would be affected.

[Alice Wong]

In other words, this whole thing would impact the economy of British Columbia as well.

[Andrew Mindell]

Yes, but I would say that our customer base is much larger for this product in Manitoba and Alberta. We do have customers in British Columbia, but given the nature of our customers—farmstead equipment, covered shelter manufacturers, playground manufacturers—there's fairly heavy representation in Manitoba, Alberta, Saskatchewan and British Columbia. I would say it's in that order: Manitoba, Alberta, probably British Columbia and then Saskatchewan.

[Alice Wong]

Thank you very much.

Colin.