International Trade Committee on Nov. 3rd, 2016

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

Thank you very much for your presentations.

My riding is New Brunswick Southwest, so I align with Saint John, and certainly Ocean Steel is a significant company in the Saint John community. How has the drop in Canada's energy sector affected the domestic demand for Canadian steel? That's my first question.

[Patrick Hum]

I would say quite significantly, as energy represents about a third of the customer base for Canadian steel producers. We have seen a number of plant and mill closures, especially on the pipe-and-tube side. The other public closures are temporary closures and layoffs. It has definitely affected it, both on the margin side and on the production side.

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

Okay, thank you.

[Paul Halucha]

Just to add to that, as part of my responsibilities in the department, I work on foreign investment as well. We have fairly regular meetings with all the big players in the oil patch and in heavy oil and gas in Alberta in particular, and also in the Atlantic. We had an opportunity to meet with representatives from Suncor and from ExxonMobil yesterday. In all instances, it's rare to see any of the companies talking about big capital expenditures right now, and that has been the case for about the last two or three years. Many projects that would have been very intensive in steel have been deferred as a result of the reduction in the price.

Those two things will be really linked. We won't see a return in significant capital expenditures until people can begin to see the opportunities to get their product to market. Many of the issues around pipelines and access to the markets obviously are critical there as well, but the investments even in a lot of the exploration are very much tied to having a price that can justify that investment.

I think there has definitely been a downstream effect on steel from that. We've certainly heard that for a number of years now.

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

Mr. Halucha, in your presentation you mentioned the strong linkages between the industry itself and the universities, colleges, and research institutions. How quickly do the educational programs adapt to the changing market in the steel industry?

[Paul Halucha]

I'll turn to Patrick on that one, or perhaps somebody from the industry would be better to speak to that.

I know when we met with Stelco last week, the union talked quite at length about the relationship they have with Mohawk College. They talked about the employee shortages around electrical and mechanical engineering and how important it was to have those positions being serviced.

There's definitely a chicken-and-egg issue in terms of the talent being produced and the attractiveness of the opportunity. If young people are looking around and seeing that the opportunities in that type of industry are not there or they're being impacted the way they are, they're less likely to proceed into those lines of work. You expect that to be a regular market response. So I think many of the producers are developing stronger relations with colleges with a view to establishing a better pipeline. Obviously having the talent in steel, as in any sector of the economy, is absolutely critical. There are some labour jobs in the way we imagine in steel mills from back in the 1950s through to the 1990s, but these are much more sophisticated, high-tech positions now, and their qualifications to participate and be part of the labour force are higher than certainly they were in the past.

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

Coming from the educational field prior to being a parliamentarian, certainly I think what you've just said there, Mr. Halucha, is very critical, because so often we look at the forecasting of industry and the forecasting of employment. For a young person looking at the next four years, if their parents were reading the updates in the news they might say a specific industry or area of trade might not be the best. Certainly we look now at where we're at with so many of our industries in Canada, and we do have trade shortages and skill shortages. So I hope the industry continues to work closely—

[Paul Halucha]

I would say as well, if you compare the steel industry with many other industries where you've seen disruptions caused by technologies that are displacing workers, there certainly is a degree of robotics and automation that has been brought into the steel process, but it is labour-intensive. There isn't a technology that replaces the need to have highly skilled labourers there. In fact, I think it has actually intensified that need to work with those technologies.

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

Okay, thank you very much.

[The Vice-Chair, Conservative, Randy Hoback]

I'm going to get the clerk to hold up his hand when I'm at five minutes, and that way you'll know that I haven't gone over my five minutes. I'm going to take some time because there are some questions that I definitely want to ask here.

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

I'll time you.

[The Vice-Chair, Conservative, Randy Hoback]

You can time me if you want.

My first question is to the finance department. When you do your assessment on dumping, how much does carbon pricing come into that assessment?

I think the number we used here was 42 kilograms of carbon dioxide per tonne of steel here in Canada versus 916 kilograms for India. The reality is that it's a huge difference. If that was a factor in the decision of whether to build more steel plants somewhere in the world, they should be built in Canada versus India just because of the global carbon footprint. When you look at that, you must have to say, okay, because it's a dirtier steel, there has to be some consideration of the fact that we have such a clean steel here in Canada and the cost of getting that cleaner steel. How do you bring that into the equation?

[Michèle Govier]

I can answer with respect to the trade remedy system, but I think it ends up being a broader question.

With respect to anti-dumping investigations per se, there is no allowance to take those kinds of environmental considerations into play. Part of that is because we're following WTO rules that set out what the basis can be for imposing these types of duties, and we have to be guided by that and by those obligations.

That said, I think it's a bigger picture issue, one that maybe has been discussed a bit more earlier today, about what other channels there might be to address that gap in the environmental footprint of the steel industry in the two countries. It's just that it's difficult to put it into the—

[The Vice-Chair, Conservative, Randy Hoback]

So there is no trade ability to actually say, because it's a cleaner product, it's able to demand some sort of compensation. The marketplace doesn't give it. The marketplace isn't going to offset the cost they had to spend to get it down to 42 kilograms. The marketplace just isn't going to do it.

What is going to do it? Otherwise these guys are going to revolve back into bankruptcy again and again. It's not the fact of dumping. In fact, you could look at it and say, you know, they're not putting steel into Canada at below the cost of production. They could actually be at their cost of production and putting it into Canada and we still can't compete. That basically means that instead of doing the globe a favour and producing steel at 42 kilograms, we're actually going to be buying steel from somebody else at 916 kilograms. Isn't that counterproductive to the goal of reducing our carbon footprint in a global context?

[Michèle Govier]

What I would say in that context is that if we are applying measures in our economy that require our steel industry to have fewer GHG emissions, for example, there is the potential of offsetting some of that at the border, so that when things are being imported, that could be—

[The Vice-Chair, Conservative, Randy Hoback]

Then let's go down that road. If you're going to offset it, would that be perceived as a subsidy into our own steel industry?

Would it not be viewed as actually illegal subsidization of that sector if we looked at it and said, okay, you're going to buy power at commercial rates but because you're a steel industry that competes in the world we're actually going to take some of the credits that we get from the carbon tax or the carbon pricing—we'll use that for an example—and we're going to put that back into that steel sector?

[Michèle Govier]

Well, if it were being given right back to the steel sector, that would raise certain concerns on that front. However, if it's really just a question of ensuring that the carbon pricing faced by domestic industry is also faced by companies that want to export to Canada, that's not necessarily going back to the steel companies; it's going to be applied at the border as a sort of tariff.

[The Vice-Chair, Conservative, Randy Hoback]

I'm talking about the fact that if we're looking at steel produced in Canada for export and we're saying we're going to subsidize that steel, because we have to get that cost down so they can compete on a global platform, to get their power costs down, the fact is that we're subsidizing that company to get their costs down. So in fact we are subsidizing them domestically so that they can compete internationally. That would be a problem, would it not, in all our trade pacts?

[Michèle Govier]

That would be, if it were for the purposes of exporting. I was talking about the import situation as opposed to the export situation. Yes, I think it would raise some concerns to do it that way.

[The Vice-Chair, Conservative, Randy Hoback]

Again, if the global idea is to reduce carbon footprint, we should be exporting as much steel as we can possibly produce. Is that not fair to say?

[Michèle Govier]

I think there is an interest in ensuring that the steel that everybody is consuming is the lowest environment footprint possible.

[The Vice-Chair, Conservative, Randy Hoback]

I know we asked to do a study on the carbon tax or carbon pricing here in this committee. Do you not see the dangers of our moving outside of other jurisdictions in policies such as this without having a level playing field? If the goal is definitely to reduce carbon and our carbon footprint in a global nature, do we not have to do it in such a fashion that, if we're doing it, then India and China and everybody else has to do it?

[Michèle Govier]

Yes, I recognize the issue that you're raising, for sure. I feel ill prepared to get into a lot of the environmental things.

[The Vice-Chair, Conservative, Randy Hoback]

I should be asking other people this question, and I will be, for sure, but I guess the question from a trade perspective is that Canadian companies are going to compete in the world and we're going to throw a lot more costs at them, so how do they compete? How do we actually protect them? We can't.

I'm sorry, I have to finish. I'm at five minutes, so we'll move on to Ms. Ramsey.

[Tracey Ramsey, NDP, Essex, ON]

We can do more, and strengthening the trade remedies is certainly one of the things that we can do. I think there are compelling arguments to being on board with the steel industry and the 22,000 workers in Canada. You've highlighted a lot of them. We have a lot of opportunities coming in procurement, in infrastructure, that I hope will be fulfilled with Canadian steel for all the reasons that we've talked about here today, the environmental footprint and everything. There is such a strong case, but we need the trade remedies to be improved as they have been in other countries so we don't fall prey to this more than others.

I want to speak specifically about the auto sector because I come from that sector. Certainly in southwestern Ontario it's a huge component of our manufacturing. I wonder if you've done any type of analysis of the Canadian auto sector, understanding that about 900 kilos of steel are in each vehicle, so it's very significant.

How would it be affected if we were able to amend our trade remedies? What would be the impact? If we amend them and get them to a higher anti-dumping duty rate, what would be the impact on the auto sector?