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.