International Trade Committee on March 21st, 2017

[The Chair, Liberal, Mark Eyking]

Let's bring this meeting to order.

First of all, welcome everybody. We have a really big slate of witnesses here today. I'm sorry for the inconvenience and the delay. We had an issue up at the House that we had to deal with—when the bell rings, we have to vote—and we had to do some business.

We're going to have a very productive session here over the next hour. As many of you know, we're doing a study on steel. We've had some witnesses in already, in our last meeting.

My understanding is that the three chambers of commerce are going to speak together for five minutes, and then we're going to go to Stelco, Gerdau Long Steel North America, and then to Evraz and Essar Steel Algoma.

If you could each keep to around five minutes or shorter, it would be good. That way we can get some good dialogue back and forth with the members.

I have to excuse myself in a few minutes as I have another meeting, but Randy Hoback will take the chair. You're going to be in good hands.

Without further ado, we're going to start out with the chambers of commerce. We have three of them. We have the Hamilton, the Sault Ste. Marie, and the Windsor-Essex chambers of commerce.

[Matthew Marchand, President and Chief Executive Officer, Windsor-Essex Regional Chamber of Commerce]

Good afternoon, committee members. We'll be using the full five minutes, so please hold off on any questions.

The Windsor-Essex chamber represents 800 businesses large and small, with combined sales in the billions, who have member employees numbering more than 25,000. This includes Atlas Tube, whose parent company is Zekelman Industries. It employs 220 people, exports $250 million of product per year, is the largest employer in Harrow, and is the most efficient producer of structural tubing in the world. Atlas Tube buys more steel than any auto company in Canada, and parent company Zekelman Industries is the largest private buyer of flat rolled steel in North America at 2.5 million tonnes, equivalent to the entire output of Stelco.

Our fundamental question to the committee is: how we can expect our business community, such as Atlas Tube and their employees—our middle class, our community—to compete against government-owned enterprises in China? They have employment and production quotas, have little regard for profits or losses, manipulate the currency, use cheap coal emitting 15 times as much CO₂ as Canada per tonne, and dump steel into Canada, displacing our employers and middle class.

Our trade deficit with China is approaching $50 billion. The chamber here says China is not a market economy. I guess the question for the committee, especially for those from the governing party, is: do you believe that China should be given market economy status?

In September 2016, chambers across Canada representing 400,000 businesses passed a resolution for a steel manufacturing strategy from the Canadian government to combat steel dumping into Canada. The current process to address dumping of steel is too lengthy, too expensive, and has too many loopholes. So here we are today.

Thank you, Mr. Chair.

[Huzaifa Saeed, Policy and Research Analyst, Hamilton Chamber of Commerce]

I'll take the baton. My name is Huzaifa Saeed, and I'm from the Hamilton Chamber of Commerce. Through MPs Duvall and Bratina, we are quite ably represented on this committee, and you'll be hearing from Stelco later today, and ArcelorMittal Dofasco this week, two of our largest producers.

We also wanted to come to Ottawa to talk about the impact steel has within the local economy and the pure employment provided by steel producers, both the ones mentioned as well as a large number of small and medium businesses we represent here, which don't have the capacity or the ability to conduct government relations or actively engage with the government. There are hundreds and thousands of people employed.

Steel, as a backbone to our economy, has also created the ability for us to be active in the auto sector, the aerospace sector, railcar manufacturing, and construction. The list goes on. Canada's manufacturing is fully wedded to, and funded and anchored by, the steel producers. Without them, we would be in a very different scenario. We see McMaster University and Mohawk College working very closely with steel producers, which then bring in the after-market manufacturers that are working on different projects. We have tripartite projects producing some world-class products that many countries aren't able to compete with. They're exporting into the United States and despite Buy America policies, they're still able to compete at a high level because they're innovating and they're resilient, and that's what defines Hamilton.

We really wanted to invite members of the committee to come into town. I'm sure our MPs will take you around and show you some of the very high-tech things we're doing, but at the same time, I think the scale and capital required isn't really there yet. Steel has not been known as a marquee industry in the last half-decade, in the last decade. The baton has switched over to the auto sector, and in the Kitchener-Waterloo Toronto area the tech sector. We're just here to say steel is still there. It's in our backyard, it's employing hundreds and thousands of workers, and when there is a downturn we see it with our own eyes. We see the impact and the decline that Hamilton experienced in the last few decades just from the neglect.

[The Vice-Chair, Conservative, Randy Hoback]

Mr. Ring, you have 30 seconds.

[Rory Ring, Chief Executive Officer, Sault Ste. Marie Chamber of Commerce]

I'm Rory Ring, CEO for the Sault Ste. Marie Chamber of Commerce. You'll be hearing from Tenaris Tubes. They'll be addressing you on the 23rd. Essar Algoma is here today.

Sault Ste. Marie has lost 2500 people in the last five years. Our business community has shrunk by 500 and we have felt the impacts of the non-market economies circumventing trade legislation. It goes right down to the suppliers of steel-toed boots and the suppliers of pizza. We see it right on the street and it's affecting our small and medium-sized companies and their ability to innovate, to recycle capital into addressing carbon footprint, and to develop innovations and create partnerships with secondary and post-secondary institutions to build out their R and D capacities.

[The Vice-Chair, Conservative, Randy Hoback]

I apologize. Unfortunately, the votes shortened your time. I appreciate you working with us.

We're moving on to Essar Steel Algoma. You have five minutes, sir.

[Kalyan Ghosh, President and Chief Executive Officer, Essar Steel Algoma Inc.]

Good afternoon.

I want to thank the committee for inviting Essar Steel Algoma to appear before you to discuss an important aspect of our industry and the company.

We are a fully integrated, advanced steel manufacturer. We manufacture steel from start to finish at our steelworks in Sault Ste. Marie, Ontario. We make a significant contribution to the Canadian economy. We can and do compete on the global stage every day. The Canadian government can help Algoma and the broader steel industry remain successful and competitive by ensuring a free and fair domestic market.

Algoma adds value through production of sheet and plate products. We have proven capability in over 400 different grades of steel, many of which were not available as recently as 10 or 20 years ago. Our steel is used in countless sectors; our sheet and plate product is used in the energy sector to make casing, line pipe, and pressure vessels; our plates help railcar manufacturers meet new requirements for the safe transport of oil and gas; and our high-strength sheet is used in structural and safety automotive applications.

We employ about 2,800 skilled workers and support a further 10,000 indirect jobs. The average annual compensation for an Algoma employee is $108,000. These are very good, middle-class jobs. We further support over 6,000 pensioners, most of whom live in and around the city of Soo. Our annual payroll sits at around $300 million, and we spend a further $1.2 billion annually on goods and services, of which $120 million is spent with over 600 local suppliers. We are a significant contributor to Canadian GDP and an important part of the supply chain for industrial clusters such as automotive, oil and gas, mining, and renewable energy.

Algoma is competitive and supports customers across North America. We thrive in a free and fair market. On this basis, we can compete with any steel manufacturer in the world. Algoma ranks in the top quartile in North America as one of the lowest-cost integrated steel producers. Our capacity utilization rate approaches over 90%, well above the industry average, which is currently at 70% to 75%. We have the widest plate mill in North America and the only heat-treated plate facility in Canada, which differentiates us in the market and enables us to produce specialty steels such as armour plate, wind tower, and shipbuilding grade steels. Algoma is competitive while being environmentally responsible. We have achieved a 17% reduction in greenhouse gases since 1993 while increasing production by over 20% over that same period. This equates to over a 55% drop in CO2 intensity. Our carbon footprint is one of the lowest in the industry, in part thanks to the clean energy supplied by the Ontario grid in combination with our cogeneration facility that recycles by-product gas into steam and power.

You can help.

There are, however, impediments to Algoma’s success. Overcapacity is a pervasive problem in the global steel industry. Global excess capacity is now virtually over 700 million tonnes, with China representing over 60% to 70% of the surplus. This problem has been raised at different forums including the OECD as the leading economic problem facing the steel industry.

The steel industry in China does not operate on the basis of profit optimization but rather on employment maximization. In other words Chinese steel is government subsidized, produced at artificially low prices, and sold abroad, often below true cost, to support Chinese jobs. When it arrives in Canada it is at the expense of Canadian jobs.

Low-priced foreign steel displaces domestic steel production in countries like Canada and drives down prices below market value. Massive capacity rationalization is necessary to address this problem. However, we recognize the Canadian government can’t force the capacity rationalization that is needed in China. It can, however, stop Canada from being a steel dumping ground.

The Canadian government can continue to treat China as a non-market economy, which appropriately reflects the way Chinese steelmakers do business.

The Canadian government can strengthen Canada's trade laws by implementing the proposal put forward by the Canadian Steel Producers Association.

Finally, the Canadian government can ensure that trade rules are strictly and proactively enforced.

[The Vice-Chair, Conservative, Randy Hoback]

I'm going to interrupt you right there, sir. You have two seconds if you want to finish off your statement.

[Kalyan Ghosh]

In conclusion, I would like to say, on behalf of the 2,800 employees and 76,000 people in the Soo, that Algoma is competitive and adds significant value to the Canadian economy. The Canadian government can help by ensuring a level playing field.

Thank you once again for your time.

[The Vice-Chair, Conservative, Randy Hoback]

Thank you, sir.

We are going to move on to Evraz steel.

The floor is yours, Mr. Winkler.

[Conrad Winkler, President and Chief Executive Officer, North America, Evraz]

Good afternoon, honourable members of the committee. Thank you for the opportunity to speak today as part of your study.

Evraz is the leading producer of large-diameter pipe in North America, employing 1,800 people in Regina, Camrose, and Red Deer. We're in the midst of a $200-million-plus investment and upgrade in Regina to have the leading-edge steelmaking and pipeline technology and to be a world leader for quality and safety.

We also employ about 1,500 people in the United States, and we are the largest producer of rail steel in the United States and North America.

I'm confident that Evraz can compete with any steel producer in the world under fair conditions of competition. We have excellent skilled workers. We are positioned to invest, compete, and succeed. However, we face four key challenges that undermine our competitiveness.

First, as Kalyan and others have talked about, global overcapacity in steel leads to unfair pricing and job losses in Canada. China has heavily subsidized and overbuilt its steel industry. China has more than 60% of the global steel overcapacity, and exports more than 10 times the size of the Canadian market annually.

Evraz has suffered job losses due to dumped and subsidized Chinese steel. We ask that the government continue to push for concrete, binding actions for a reduction in excess capacity, to bring much needed market-based discipline globally.

China is not the only problem. For example, Korea is the next largest exporter of steel to North America. Unfair Korean pricing has caused disruptions in many market segments. While Chinese overcapacity is the long-term problem requiring vigilance, fighting dumping in the short term is critical. While we know that this dumping often comes from our allies and their own capacity. Reliance on exports is not a reason for Canada to be harmed.

Second, free trade must be fair. A strong trade remedy system is vital to a strong domestic market. As the United States continues to tighten its trade position, Canada will represent an attractive alternative market for low-priced steel from around the world. We're very appreciative of Canada's trade remedy system and the efforts we hope the government is going to make and will continue to make.

I'm shortening things up a little as I look at that watch.

Third, the carbon pricing mechanisms should be carefully implemented. We support the government's priority of addressing climate change in a balanced approach. Canadian steel is the cleanest steel for Canada. Chinese steel has more than five times the carbon footprint of Evraz steel. Measures that place Canadian producers at a disadvantage at home against heavier polluters are not good for middle-class jobs or the environment.

Finally, we encourage the government to remain engaged with our industry regarding any trade negotiations with the United States. In 2016, 88% of steel exports from Canada were to the U.S. The U.S.-Canada steel trade is a model relationship, balanced, integrated, and without trade disputes. Our customers do not see a border.

We serve pipeline companies in the U.S. and Canada from Regina, and railroads in the U.S. and Canada from Colorado. In the past three years we have averaged $360 million in sales crossing the border in each direction, approximately even going each way. Market access for our Canadian-made steel is vital for Evraz and our customers. We are thankful for the strong and constructive stand of the government on this make-or-break issue.

To protect middle-class jobs in both countries, it is imperative that Canada strongly represent its interest against possible expansions of Buy America, especially for private transactions such as any domestic content requirement for U.S. pipelines.

I'm confident that we can continue to grow well-paying, skilled, middle-class jobs. When market forces prevail, when a level playing field for competition exists, and when the Canadian steel industry has fair market access, we will succeed.

I look forward to answering any questions you may have.

Thank you so much.

[The Vice-Chair, Conservative, Randy Hoback]

Thank you.

We'll move on to Gerdau Long Steel North America.

You have the floor, sir.

[Roger Paiva, Vice-President and General Manager, Gerdau Long Steel North America]

Thank you for the opportunity to be here.

At Gerdau Canada, we have three steel mills. We have one in Manitoba that produces specialty steels and two in Ontario, in Cambridge and Whitby. We employ over 1,300 employees directly in high-paying jobs.

With all our mills, and there are many mills, we are true recyclers with 100% of our raw material coming from metal scrap. This is very important for the world. We have over 1.6 million tonnes of capacity. We are not running at full asset capacity. I'd say that we're running probably below 70%. The reason is unfairly traded steel.

Our mills have state-of-the-art equipment. We have very skilled, trained workers and I'm proud to say that in the two Ontario mills, we haven't had a lost-time accident in more than five years. This is remarkable and I'm very proud to say it.

One point my colleagues covered is that in Canada, and mainly in Ontario, we produce the greenest steel in the world with 90% of our electricity coming from non-fossil sources, so we should be rewarded. It puts us in an even more competitive position in the world. Just to give you an idea about the CO2 emissions, if you look to our plants in Ontario and compare them to a plant overseas, the CO2 emissions are at least 10 times less. We believe that here we have a great opportunity to use steel that's going to power our economy, help to make the world a greener place, and help with climate change.

The biggest issue we face is unfairly traded steel. Personally, I was heavily involved in a rebar trade case in 2014 and 2015 against China, South Korea, and Turkey. We stopped those three countries, but at the same time we had six other countries dump even more steel in Canada. A few days from now we'll be in front of CITT again to see if we can win another fight against six countries: Belarus, Japan, Portugal, Spain, Taiwan, and Hong Kong. It's a constant battle.

We cannot compete against government. There is not the equipment or the process in place that will allow us to compete against a government. Very simply, that's how it is.

There are three ways that we believe the government can help us.

One is to make sure the trade remedy system is updated, fast, reliable, and will prevent any smart importer or exporter from finding loopholes. We applaud the government because we know the government is working on it.

Another one is the procurement policy. We should reward the low CO2 emitters and put everyone on a level playing field. As well, if we're going to pay for carbon taxes—and we believe this is what we need to do to make sure the world will be a good place for our grandchildren to live—the rules need to apply to everybody. Otherwise, it will be carbon leakage. You're going to put the steel business here out of work and it will be forced to buy steel from people who are not taking care of the environment.

The third point is that we need to be in alignment with the U.S. and make sure that Canada won't become a dumping ground.

Thank you for the opportunity and hopefully I'll be able to answer the questions.

[The Vice-Chair, Conservative, Randy Hoback]

Thank you.

We'll move on to Stelco, our last presenter.

[Michael McQuade, President and General Manager, Stelco Inc.]

Good afternoon, honourable members of the committee. I'd like to thank you for the opportunity to speak to the viability of the Canadian steel industry and Stelco, in particular.

Stelco has a history of building Canada and the landmarks that dot our landscape. For over 100 years, our steel has contributed to the growth of our nation, both structurally and economically. From the cars we drive to the pipes that support our energy resource sector, from the Canadian Coast Guard College and Saint John Regional Hospital in the east to the Regina Agridome and Calgary International Airport in the west, and all the way the way to the tip of the CN Tower, Stelco steel can be found in plain sight from sea to sea.

The past dozen or so years have proven to be tumultuous ones for our company. Stelco emerged from creditor protection in 2006 during an unprecedented up cycle in the steel market, without having addressed the fundamental issues that led the company to initially enter creditor protection under CCAA in 2004.

In 2007, U.S. Steel acquired Stelco and transformed the operations into a satellite manufacturing location centrally managed from Pittsburgh. Stelco maintained little control over market development, raw material sourcing, or ultimately, it's profitability. U.S. Steel's multiple operating locations allowed Stelco's traditional markets to be served from a variety of locations. Servicing the marketplace with multiple options for manufacturing afforded U.S. Steel the opportunity to bring Stelco wages in line with North American standards. The result was three labour disruptions in the past 10 years and the corresponding negative impact on our financial performance.

However, being part of a multinational company did afford Stelco the opportunity to weather the financial crisis that commenced in 2008, and to benchmark and enhance operational excellence.

Today, our employees are safer than ever before. In 2007, there were almost 600 recordable injuries at our combined operations. In 2016, only nine cases were recorded. This improvement is not only a measure of vastly improved safety performance, but also reflects a necessary change in the core philosophy of our business. Employees are valued, not just viewed as an expense.

Similar results can be seen in our environmental performance. Over the past decade, we have continuously reduced our emissions through capital investment, operating practices, and the training of our employees. At our Hamilton facility, this has translated into an 80% reduction in air opacity incidents since 2007, and a 97% and 95% reduction in water and ground incidents respectively.

We have also invested to support the development of the next generation of high-strength steels, positioning Stelco to work with its customers—in particular, the auto sector—and to develop and manufacture the cutting-edge steels that will be required in the coming years. In fact, over the past five years, Stelco has developed the technology and processes to manufacture 20 different grades of these lighter, stronger, future-ready steels.

All this is to say that Stelco sits poised to compete with any company around the globe upon our successful emergence from credit protection. We will have addressed significant balance sheet liabilities, including the legacy obligations, and that will enable Stelco to be competitive as a stand-alone business.

Stelco will have new collective agreements with its unions to provide labour peace for an extended period of time. Our balance sheet will be clean, our cost of production will be low, and we will be well positioned to compete in the North American marketplace.

This brings us to our discussion here today. As I sit before you, I can attest that there exist many challenges facing our business that will impact our ability to compete internationally. Of particular concern are the recent developments in the Canada-U.S. trade relationship.

I think there is mutual agreement that we are entering into a critical period with respect to our bilateral relationship with the U.S. With the prospect of a renegotiation of NAFTA looming, and with provisions requiring steel to be melted and poured in the U.S. expanding beyond the traditional scope of the Buy America program and into other areas of procurement and the private sector, Canadian industry has reason to be concerned.

Prior to the 1987 Canada-U.S. Free Trade Agreement, both countries placed tariffs on steel products crossing the border. The cross-border integration of our customers, such as automotive, was substantially less. The combative approach to trade and the restrictions embedded in American law at the time constituted major impediments to Canadian steel's access to the U.S. market. The Canada-U.S. agreement recognized that our economies would mutually benefit from a reduction in trade restrictions. The solution was an agreement to less-restricted steel trade through the removal of tariffs on steel in both directions.

These principles were further enshrined, and they should remain as the cornerstones of NAFTA and any future agreement with the U.S. regarding the steel industry.

While I am encouraged by the position taken by our government in these early days of the new U.S. administration, I believe our focus should be on increasing collaboration with our largest trading partner. We would be working together to encourage growth in manufacturing for both our respective countries.

The reintroduction or the expansion of barriers to trade must be prevented. Our industries and economies are both served by an integrated relationship based on the foundation of market principles and strong trade rules. Together we should be working with our American partners to limit the ability of dumped or subsidized imports from countries that do not share those principles.

It's my hope that the budget tabled tomorrow by Minister Morneau will incorporate these measures to modernize our domestic trade remedy system so that we can work hand in hand. It has been recognized by the OECD and governments around the world that substantial overcapacity exists—

[The Vice-Chair, Conservative, Randy Hoback]

Mr. McQuade, you're going to have to wrap up.

[Michael McQuade]

In closing, we have 2,000 employees, 15,000 retirees, and many more in the Hamilton and Nanticoke areas who depend on our business.

Thank you for your time.

[The Vice-Chair, Conservative, Randy Hoback]

Thank you, sir.

We're going to move right into rounds of questions.

Members, you'll have five minutes. We'll start with the Conservatives.

Mr. Van Kesteren.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

Thanks to all of you for being here. Those were interesting opening remarks. I'm going to direct my questions first to the steel manufacturers.

Mr. Paiva, is yours a Brazilian company?

[Roger Paiva]

Yes.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

Mr. Winkler, yours is headquartered in London, but it's actually owned by a Russian oligarch, I think. Isn't that correct?

[Conrad Winkler]

It's traded on the London Stock Exchange, and it's also owned privately by a series of Russians....

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

Yes. That's fine. I'm going to clarify where I'm going with this.

All of you spoke about and commended our Canadian government for its position on carbon, on our carbon footprint. However, I'm wondering, and I'm thinking it's too bad that we don't have.... I think the other two companies are Canadian. Are they both Canadian companies?

[A voice]

Not anymore.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

Are the parents still American?