International Trade Committee on March 9th, 2017

[The Chair, Liberal, Mark Eyking]

Good afternoon, everyone, and welcome.

We're a little late, because everybody had to make the cold walk from the House of Commons down to here. Everybody is getting warmed up with their coffee, and we're good to go.

This is the second meeting on our study of the Canadian steel industry’s ability to compete internationally. Our committee has been busy with the TPP study. Also, our committee is going to be going to the United States in the next few months, but steel is very important and we're going to have a couple more meetings on steel over the next few weeks.

Without further ado, we have four speakers here today to speak about the steel industry. We have Mr. Miller from Amalgamated Trading Ltd. We have Mr. Galimberti from the Canadian Steel Producers Association. We have Mr. Lee from the Macdonald-Laurier Institute. From the United Steelworkers, we have Mr. Neumann and Mr. Jamal.

Welcome, folks. You have five minutes or less for each group, and then we'll have a dialogue with the MPs.

I'll start off with Mr. Miller. If you're good to go, sir, you have the floor.

[William Miller, President and Chief Executive Officer, Amalgamated Trading Ltd.]

Thank you very much, Chair, for the invitation to be a witness here at this committee.

My name is Bill Miller. I own Amalgamated Trading. We are an importer of steel in western Canada. I have been involved in the steel industry for over 25 years. Our main suppliers are Asian countries, and our main market is western Canada, from B.C. to Manitoba. We sell a bit into eastern Canada, but not very much.

I was born in Hamilton, Ontario, so I was born in Steeltown. My family then took me to B.C., which is a little bit nicer than Hamilton. I come from a large family. My family has been employed in the Canadian steel mills and supported by the Canadian steel mills. I respect the Canadian steel mills and what they have to offer our economy in eastern Canada, but as an importer, I firmly believe there is room for imported steel and there is room for domestically produced steel.

Importing steel has a large impact on our economy in western Canada. I am speaking of western Canada because I import more into western Canada than I do into eastern Canada.

Our current trade cases and their direct impact on Canadian producers are what I'd like to speak about because currently we have 47 trade cases against steel, and 19 countries that are affected against steel imports. I think that we have trade cases on over 50% of the products that are produced by Canadian steel mills.

Now it is important that we have trade cases, and it's important that we have the laws to protect Canadian steel producers, and I think those laws are very effective. I think our trade department is very quick and effective on implementing anti-dumping duties and countervailing duties, but I also believe that it is an eastern Canadian protectionism more than it is western Canadian.

When we're importing steel into western Canada, we're paying a freight charge from Asia to Vancouver of $45 to $50 per metric ton. When we bring it from Ontario to western Canada, we are paying $120 per metric ton. That's by rail. If we bring it via truck, we're paying nearly $200 per metric ton.

What I'm asking the committee, and what I'd like the consideration to be is, for a geographical case in anti-dumping more than just blanketing the country. I understand we have to protect the Canadian steel mills, and I support that. I support the employment of Canadian steel mills. As much as I think that the U.S. is going to take the steel production out of Canada, I still believe that the employment and the economic benefit of Canadian steel mills are directly related to eastern Canada. It does not affect western Canada.

Canadian steel mills are not interested in selling into western Canada. It's not their main market. Their main market is eastern Canada and the United States. With the current dollar, we are very competitive in the United States. Now, I think that a lot of our steel production is going to leave Canada because the Trump government is going to reduce corporate taxes, and steel is a three- or four-step process, where U.S. Steel and ArcelorMittal can probably produce slab in the United States for cheaper than they would be able to do it in Canada with the corporate taxes being reduced.

I'd like the consideration to be in a geographical trade case. We have had it recently with gypsum or drywall where we have dump duties in western Canada. We have them in the territories. We have them in some of the eastern provinces, but Quebec and Ontario are open to import gypsum. I'd like that consideration in steel for western Canadian manufacturers, whether of steel studs, heating, ventilation and air conditioning, or construction. If we have the cost of transportation from Ontario to B.C. manufactured, those B.C. companies also sell as far as Manitoba. How can they compete against the eastern manufacturer of the same product when they only have one transportation cost?

I think the precedence was set in a geographical trade case in the gypsum case, and I'd like that consideration for any trade cases in steel.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

[William Miller]

Thank you.

[The Chair, Liberal, Mark Eyking]

I should have reminded the speakers, when you see this light go on, you have half a minute to wrap up if you're going over.

We're going to move on to Mr. Galimberti from the Canadian Steel Producers Association.

Go ahead, sir.

[Joseph Galimberti, President, Canadian Steel Producers Association]

Thank you very much.

Good afternoon to the honourable members of the committee. Thank you very much for the opportunity to present today on behalf of the Canadian Steel Producers Association.

The CSPA is the national voice of Canada's $14-billion primary steel production industry. Canadian steel producers are integral to the automotive, energy, construction, and other demanding industrial supply chains here in Canada. We seek to work with government and industry partners to advance public policies that enable a globally competitive business environment for our member companies and supply chain stakeholders.

To the committee's fundamental question in undertaking this study—that is, asking whether the Canadian steel industry is able to compete internationally—the answer from our perspective is an unequivocal “yes”. In a fair and free market operating on the basis of commercial principles, the Canadian steel industry can not only compete but also thrive.

Our member companies are innovative advanced manufacturers in Canada, producing the lightweight, high-strength, and high-quality steel and steel products that modern automotive, manufacturing, infrastructure, and energy development applications demand. Our steelworkers are well educated, highly skilled, and trained throughout their career to ensure the highest possible levels of productivity in high-tech constantly evolving workplaces.

From an environmental perspective, for the purposes of producing steel, Canada is a jurisdiction unlike almost any other. We have ready access to raw materials for steelmaking. High-quality iron ore, metallurgical coal, and scrap metal are all sourced close to production. Materials are transported efficiently through Canada's modern rail and marine networks. The bulk of Canadian production facilities derive substantial energy inputs from renewable sources. There is, of course, minimal transportation associated with end markets.

This stands in stark contrast with, for instance, China, which sources iron ore from jurisdictions like Australia and Brazil, coal from jurisdictions like Mongolia, and scrap metal increasingly from North America. The end product is then, of course, transported back to Canada for end use in this jurisdiction. When these factors are considered in the context of steel production, the GHG emission differentials associated with a tonne of steel are significant. Production in Canada for use in Canada implies 1.1 tonnes of GHG emission per tonne of steel, while production in China for use in Canada implies 3.5 tonnes of GHG per tonne of steel produced.

I have not casually chosen China as an example. As the committee members are certainly aware, it is a challenging time for the global steel industry, and Canada is not immune to or sheltered from the truly international challenges facing the sector. Global excess production in steel capacity has now risen to nearly 700 million tonnes, with the People's Republic of China, through a variety of state supports, by itself now maintaining more than 425 million metric tons of that global surplus, which is almost 30 times the size of the entire Canadian steel market. In the face of declining domestic demand, widespread institutional ownership and support for China's steel sector has become the driving force behind an unprecedented disruption in established free market trade in steel.

In June 2016 five leading American steel associations released a report that analyzed each of the 25 largest steel companies in China and detailed the amount and types of government subsidies each company received in recent years. The analysis found that these subsidies and policies have led to tremendous overcapacity, and created a highly fragmented domestic steel sector in China made up of many inefficient and heavily polluting companies.

The report states:

The Chinese government has supported the country’s steel industry primarily through cash grants, equity infusions, government-mandated mergers and acquisitions, preferential loans and directed credit, land use subsidies, subsidies for utilities, raw material price controls, tax policies and benefits, currency policies, and lax enforcement of environmental regulation. The Chinese government maintains a majority share in the top-producing...Chinese steel producers. Domestic steel producers are not competing with private enterprises but with sovereign governments that do not need to use free-market principles to operate.

That last sentence is also key in the Canadian context. While Canadian producers can thrive in an open international marketplace, we cannot compete with the Government of the People's Republic of China. In this context, the maintenance of the ability to initiate section 20 inquiries under SIMA to determine where non-market economy conditions may exist is crucial to the maintenance of trade fairness in Canada.

While we applaud the Government of Canada for appreciating this problem and pressing forward on the development of multinational solutions to the problem of global overcapacity in the steel sector, most recently through Canada's active participation in the global forum on steel excess capacity, we would also caution that international solutions on overcapacity will not be quick in coming. As a result, domestic policy instruments designed to protect Canadian interests require modernization.

In the face of increasingly global trade distortion, other countries, prominently including the United States, have taken concrete domestic actions to defend their markets against present-day threats.

We cannot at this critical juncture in our trade relationship with the U.S. risk becoming a back door for dumped steel into the North American market. It is our sincere hope that as part of budget 2017, the government will move to immediately address issues where calculation of dumping margins do not accurately reflect the amount of dumping in the Canadian market, the need for enhanced and transparent processes available to the government in instances of circumvention, and clarification as regards the type and amount of evidence required to initiate trade cases.

In closing, I would remind the committee that primary steel manufacturers in Canada directly support the livelihoods of over 22,000 middle-class Canadians and an additional 100,000 Canadians whose employment is indirectly supported by our sector.

I would suggest that it is in the government's interest to ensure that our trade remedy framework is modernized to ensure that our domestic procurement and international trade policies reflect the establishment of a Canadian price on carbon and ensure that foreign producers in jurisdictions without similar regimes are not allowed an unfair cost advantage in competing with Canadian producers, and that we maintain Canada's people advantage through programming initiatives that encourage training and lifelong learning through apprenticeships, mentorships, and the continued development of industry-leading products through innovation programming.

I would also suggest that we should maintain our focus on our critical bilateral trade relationship with the United States through co-operation on international efforts to address overcapacity and dumping.

Thank you very much for your time. I am, of course, happy to take any questions that the committee might have.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to move over to Mr. Lee from the Macdonald-Laurier Institute.

Go ahead, sir. You have the floor.

[Dr. Ian Lee, Associate Professor, Carleton University, and Representative, Macdonald-Laurier Institute]

Thank you very much.

I thank the committee for inviting me, for I have a deep and enduring interest in the subject of what Adam Smith called “the wealth of nations” and the concomitant principles of trade, foreign direct investment, and comparative advantage within the rules-based framework called trade agreements.

I will first give you my disclosures very quickly. I've been a tenured associate professor at Carleton University in the Sprott school for 30 years. I don't belong to or donate any monies to any political party. I'm not a registered lobbyist under the Lobbyists Registration Act. I've taught over a hundred times in EMBA courses in developing countries around the world, including Russia, China, Ukraine, Poland, Mexico, and Iran. My final disclosure is that I just returned three days ago from teaching in Shanghai. I've taught almost every year in China since 1997 for the last 20 years, and I've seen the almost unbelievable and stunning transformation of a country never before experienced in human history in such a short period of time. It was one of the poorest nations in the world 50 years ago and it became the second-largest economy in the world.

Having said that, as everyone knows by now, the world's steel industry is facing enormous structural problems that can be summarized very succinctly. This is all from the OECD steel committee, from studies that have been done by the European Commission, and some from the U.S. trade office. I have the studies here for the committee if they want the bibliography.

World steel capacity is around 2.5 billion metric tons in a world that only needs around 1.6 billion metric tons, and there's a wide consensus in the OECD steel committee, in the U.S., and the European Union that China is largely responsible. Having studied the stats from the OECD, from the U.S. trade office, from the EU, and from the World Steel Association, I agree with this judgment, notwithstanding my deep commitment to free trade.

In 2005, world steel production totalled 1.1 billion metric tons, and within 10 years, by 2015, world production increased 41% to 1.5 billion metric tons. China increased from approximately 30% of world market share in this very short period of time to approximately 50% of the entire world. Asia and Oceania now account for 69% of total world steel production, and four of the 10 largest steel countries in the world are in Asia: China, Japan, India, and South Korea. Nine of the world's 10 largest steel-producing companies in the world are headquartered in Asia. Only ArcelorMittal is not.

Now to part two, which is China, the SOEs and steel. This is why I've come to a paradoxical conclusion, and I do agree with the Canadian Steel Producers Association.

China is a paradox because of the substantial number of Chinese SOEs, state-owned enterprises, operating side by side with privately owned Chinese corporations and foreign MNCs, multinationals. Nonetheless, the Chinese economic system can only fairly be classified as a centralized state-run economic system that uses incentives such as private ownership to a limited degree; however, the SOEs are at the commanding heights, accounting for 25% to 30% of Chinese GDP, 17% of urban employment, 38% of total Chinese industrial assets, and up to 90% in some of the monopoly sectors. They are often significantly, massively overstaffed, chronically money-losing, inefficient behemoths, but they employ huge numbers of Chinese people. The trend in China today is to consolidate SOEs to create fewer but even bigger SOEs.

It is for these reasons the successive promises by the Chinese government and the Communist Party, the CPP, to reform and privatize SOEs have failed. There are powerful interests in these large SOEs. They employ very large numbers of people, as I said, and thus I conclude in this far, far too brief overview that Canadian, U.S., or European policy-makers should not count on major reforms to SOEs and thus should not be counting on the Chinese to take major capacity out of the steel industry as they had promised. If you accept this, my argument, you cannot expect the Chinese government to close a significant chunk of steel production overcapacity. Although they are closing their oldest and least efficient steel plants, they're simultaneously opening new, much more efficient steel mills.

This is part three, and I'll wrap up. Where do we go from here? I applaud Prime Minister Trudeau's announcement of negotiations with the Chinese government concerning a possible free trade agreement. After all, as Winston Churchill famously said, it's better to jaw-jaw than to war-war. Nonetheless, we cannot rely on that option at present to deal with the steel issue for the reasons stated above. Instead, we must reform the Special Import Measures Act and regulations to provide CBSA and the CITT with more tools and more authority to conduct more broad-reaching investigations in a much more timely manner.

Second, the Government of Canada needs to develop a common front with the U.S. government, including the Trump administration, as well as the European Union on this issue to coordinate our policy responses concerning steel.

Third, the Government of Canada needs to encourage industry consolidation to produce fewer but larger firms here in Canada.

Finally, the Government of Canada must develop much more aggressive retraining and re-skilling programs advocated by the OECD to address the significant dislocation caused by Chinese dumping, to name only one activity.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, sir, for bringing your knowledge, experiences, and expertise to our table. It was a very good presentation.

We're now going to go over to the United Steelworkers.

Gentlemen, you have the floor for five minutes.

[Ken Neumann, National Director for Canada, National Office, United Steelworkers]

Good afternoon. I want to thank the committee for inviting the United Steelworkers to appear before you to discuss this very important critical industry.

I'm Ken Neumann, the national director for the United Steelworkers in Canada. With me is Shaker Jamal from our national research team. He will be with me to answer any questions, if there are any.

I have been a worker in the steel industry and a member of the union all my working life. I am committed to seeing it survive as a viable competitive Canadian industry. It is critical because it supports tens of thousands of middle-class families, as well as retirees, along with the communities that have benefited and grown during more than a century of steelmaking in Canada.

It is viable because our members in the industry produce high-quality, environmentally responsible products for domestic and foreign markets, but the steel industry is in trouble. From whichever angle you look at it, the problem comes down to the production overcapacity, primarily from one huge non-market economy, China. Such economies competing in the market-driven economies of North America are literally two worlds colliding.

The impacts are many. The first is that as the price decreases these lower prices have hurt the bottom line of many companies and forced them to access increasing amounts of short-term debt, which means many are operating at unsustainable levels. Look no further than U.S. Steel and Essar Steel Algoma, where the jobs of 3,200 workers are threatened, along with the retirement security of more than 20,000 retirees.

As if depressed prices weren't enough, increasing levels of dumped steel into North America are compounding the crisis. Chinese steel producers have used an artificially depressed currency, as well as other Chinese government export incentives, to dump steel into North America.

Our submission provides a detailed argument for the recommendations that I will outline to you in this brief presentation. Let me make it very clear from the outset that the United Steelworkers supports the role that trade plays in building and sustaining a healthy, robust economy. At the same time, we've always insisted that trade policy in Canada be developed in consultation with unions and other civil society groups, and that it serve the interests of both Canadian producers and workers.

To that end, and it has been made abundantly clear by the efforts of steel dumping from non-market economies, our union believes that Canada's trade law regime must be amended to provide unions with basic procedural rights.

First is the explicit right to file anti-dumping and countervailing duty complaints under section 31 of the Special Import Measures Act. Second is the explicit right to file safeguard complaints under section 23 of the act for the Canadian International Trade Tribunal, known as the CITT. Third is full procedural rights as interested parties under the rules and regulations of the CITT. That would include the right to receive notice, the right to counsel, and the right to participate fully in any oral or written CITT proceedings related to a complaint.

By providing unions with the right to file and participate in trade remedy complaints, Canadian producers will benefit in any trade case that they may file. This reform is essential to the ability to compete fairly against international producers within the Canadian market.

Let me conclude with the obvious fact that with 50% of the Canadian industry's total output exported to foreign markets, it is clear that the health of our high-tech, environmentally responsible steel industry is undeniably tied to the ability to be able to compete internationally. However, our submission makes it equally clear how and why this ability is overwhelmingly impacted by China's behaviour as a non-market economy and its unfair dumping of steel in Canada, as well as the United States.

By revising Canada's trade laws, the federal government will ensure that the Canadian steel industry is able to compete in the global economy.

That ends my remarks, and I thank the committee for the opportunity. I look forward to any questions that you may have.

[The Chair, Liberal, Mark Eyking]

Thank you. All the presentations together have given us quite a snapshot of the state of the steel industry, for sure, internationally.

Before we go ahead, I'm going to welcome some new members to our committee.

Mr. Gourde, Mr. Duvall, Mr. Christopherson, and Mr. Sheehan, welcome to our vibrant, exciting committee, the most important committee on the Hill.

We're going to get started here. Each MP will have five minutes. We're going to start right off the bat with the Conservatives.

Mr. Ritz, you have the floor, sir.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Thank you, Mr. Chair.

Thank you, gentlemen, for your very concise rundown on what's wrong. I know you have a lot more than that to say, so please email it in. Put your briefs together and give us the whole picture. We can't do it all today in this short amount of time. There are so many questions.

On Mr. Miller's comment, can we do this geographically? Absolutely, we can. Gypsum was the second time that was done. There was a Washington State potato to B.C. issue a few years ago, so, yes, you can have geographical indicators on these claims.

Mr. Galimberti, you say you can't compete and I don't disagree with you at all. I wanted a little clarification. How much of the Canadian industry is still Canadian? We're seeing a lot of...and I think it was Ian who said that maybe it's all going to slide to the U.S.

[Joseph Galimberti]

Most of the mills are still Canadian. The mills in Canada for the most part are subsidiaries of international corporations.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Okay, yes, the supply side is international.

[Joseph Galimberti]

Yes, there was heavy consolidation in the industry about eight years ago. The notable exception would be Stelco now re-emerging from CCAA.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Professor Lee, you also made the comment that CBSA and CITT need new modernized tools and authorities. Have you an outline of what you think they should have to do their jobs better?

[Dr. Ian Lee]

Both the Americans and the Europeans have been revising theirs to allow them to look at, for example, whether there's been currency manipulation or a cheap loan.

I have enormous respect for China. I'm not China-bashing; I want to make that very clear. I've been there many times and I'm going back again. I love going there and I love the Chinese people. At the same time I also speak truth to power and there's no question.... I have read some of the rulings coming out of the European Union and these are quasi-judicial bodies. These aren't witch hunts. The data is very clear that China is selling at well below their cost of production in the U.S., Canada, and the European Union. That's why the European Union just imposed tariffs of some 70%. That's not trivial.

To answer your question, and I can send it in a more formal response, they're subsidizing in multiple ways. They're giving extended loans, loans that wouldn't qualify because the company's bankrupt in the first place. They're giving them very artificially low interest rate loans. They're giving them preferential treatment inside, because they're owned by the Government of China. They're getting a whole series of preferences and preferential treatment and they're doing this. I understand why.

I didn't mention in my opening comments, but McKinsey consulting has documented this, and this has been confirmed to me when I've been in China. Some 15 million people are coming from the rural areas into the cities every year, and they're not coming to visit. They move to the cities, and the legitimacy of the Chinese government comes from one thing—and I hear this privately from people—they're going to deliver them jobs.

The Chinese government is terrified. The moment they stop...and I'm not trying to defend what they're doing. I'm just trying to explain what they're doing and why they are not going to reform and stop dumping steel. Because the pressures on them at home are so great, we're going to have to stop them, because I don't think they're going to.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

I was there when they introduced their new five-year plan and the nexus of it is taking care of all of these people moving in from the rural areas.

There's so much to go through here.

Mr. Neumann, you also talked about the union being allowed to take part in some of these anti-dumping measures. I'm wondering if you see a model for doing that in what we're facing now with the softwood lumber agreement, where the lumber mills in the U.S. claim the tariff value while this is under discussion. Is that the type of model you're thinking of?

[Ken Neumann]

The fact is that we're asking for something we currently don't have. You take our counterparts in the U.S., Australia, Europe. In Australia, the unions there have the ability to file complaints on behalf of their members. That's really what we're asking for, to be on that same level playing field.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

So it's workable under WTO.

[Ken Neumann]

That's right, and then as far as the softwood lumber, that's a hot file we're dealing with. I can talk at length with regard to—

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

I know you have an overview on that too.

[Ken Neumann]

That's right. It's going to be disastrous for Canada. We've lost 50-some mills since the last trade agreement. You have employers on both sides and that's one of the big issues that's coming up within the year.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

The other thing that's floating around out there, even with the NAFTA renegotiation, is the Buy America. What do you see coming down the pike on that?

[Ken Neumann]

With the Buy America, what's coming out now is the fact that they've had the procurement they have now for many years. That's on a tax-funded basis.

The fact is that our union is on the other side fighting to make sure we have exemptions. It's nothing new to us. The steelworkers have been involved in section 201. We used to take busloads of steelworkers to Chicago to testify to have us excluded. Our union was involved with the Gordie Howe bridge to make sure that was North American steel. We're involved to make sure that the pipe that comes out of Saskatchewan, a mill that I used to work at, can be laid if the Keystone pipeline proceeds.