International Trade Committee on Feb. 18th, 2020

[Catherine Cobden, President, Canadian Steel Producers Association]

Thank you, Madam Chair and members of the committee.

Thank you very much for the opportunity to be here today. My name is Catherine Cobden. I'm the president of the Canadian Steel Producers Association and it's my honour to share the perspectives of our members on Bill C-4, an act to implement the agreement between Canada, the United States and Mexico.

I'm here today representing member companies, which produce approximately 15 million tonnes of steel pipe and tubular products annually and support 123,000 direct and indirect jobs in five provinces, from Saskatchewan through to Quebec.

Canada's steel sector plays a strategically important role in the North American economy. We are advanced manufacturers of 100% recyclable and enduring product. We are a critical supplier to other key Canadian and North American sectors, including the automotive, energy and construction sectors and many other general manufacturing applications. We're also a sector that knows first-hand how critical it is for our business success to have strong and productive relationships between Canada and the United States and Mexico.

We operate in a highly integrated marketplace with steel moving back and forth across the Canada, U.S. and Mexico borders as it is transformed into additional products. In this capacity, we thank you all for this agreement and we welcome it wholly. We urge all members of the House of Commons and the Senate to support this bill and ratify it without delay. We see immediate advantages of the new agreement that strengthen NAFTA in several important ways both for our country and certainly for our steel sector. The agreement also creates more certainty in our markets, a much needed and necessary condition for driving increased investment.

Now let me step you through some of the key advantages for steel that we see in this new agreement.

First, the automotive rules of origin incentivize the use of Canadian and North American steel. This means that more North American steel will be used over foreign, non-North American steel. It sounds obvious but it deserves to be said. The new requirement for a 70% North American steel content is a significant gain for the North American steel sector. NAFTA did not have any such provision, so that's a significant development.

Today the North American automotive sector is a valued customer for our technically advanced and high-quality steel, with approximately 25% to 30% of all Canadian steel supplying this sector. That equates to about three million to four million tonnes annually. This is an extremely important development for us and for our steel industry colleagues in the U.S. and Mexico. Indeed, we were quite engaged working together on this and other aspects of this agreement.

Furthermore, the increased North American value content requirements for vehicles and vehicle parts are also important and improve the original NAFTA agreement significantly. As Jean has already mentioned, in some cases it has moved the content requirement from 62% to roughly 75%, which is a tremendous increase.

In the case of steel, we also welcome additional definitions coming into effect in seven years' time that strengthen the rules of origin by ensuring North American sourcing. This is important for our sector. We face severe global overcapacity. It's severe. The OECD estimates that approximately 440 million tonnes of excess capacity exists globally. This excess capacity equates to about 30 times the entire Canadian production. That's steel out there that's looking for a home, that's trying to cross both the Canadian and the North American borders.

Beyond the rules of origin, I want to point out that the new agreement also improves market access for Canadian steel and allows the use of effective trade remedies against unfairly traded imports. That overcapacity, which I mentioned, often results in unfair and injurious trade practices.

The new agreement contains important provisions that will promote increased co-operation and information sharing between North American governments to address circumvention and the evasion of trade remedy orders. This is critical for us. This increased co-operation is essential for the North American steel marketplace because we face a relentless flow of unfairly traded goods due to the global overcapacity I mentioned.

I remind the committee that last May we celebrated the establishment of the Canada-U.S. understanding on trade that resulted in the lifting of the very damaging tariffs on Canadian steel. This did not come easily to our nation, but it came as we worked as one against the difficult tariff situation. For us, CUSMA takes us further along the path of working with our North American trading partners on what we refer to as the principle of a North American perimeter to trade that strengthens the competitiveness of the North American region, that addresses global steel overcapacity and that aims to deal more readily with unfairly traded steel imports.

Madam Chair, please let me end with a call to all, once again, to come together as team Canada, as you have deftly done in the past, and get this deal done as quickly as possible, with my thanks.

I'm happy to take questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Ms. Cobden.

We'll go on to Mr. Lewis.

[Chris Lewis, Conservative, Essex, ON]

Thank you, Madam Chair.

Thank you very much to the panel, the witnesses, for coming here this evening. We certainly appreciate it. All the input we can get will help us to get this moved along in a very timely manner. I know our side certainly wants to get it ratified.

The first question I have I did bring up earlier, but I really think it's important to ask both Mr. Williams and Ms. King. It's with regard to CUSMA, specifically with regard to the implementation side of CUSMA. I too was at the Toronto auto show last week, which was quite amazing, to say the least. I went there on behalf of my riding, of course, but also in my capacity as chair of our auto caucus committee. Of course, my riding is a place called Essex, which is right next to Windsor, so I have a lot of reasons to have a very keen interest in that.

My question again is specifically to both of you, please. I'm hearing from industry representatives that while they support ratification, there are concerns about the implementation, particularly the very short 90-day transition period between ratification and implementation. Can you briefly explain, first, the changes for your sector under the new NAFTA and, second, any concerns your sector has about the implementation issues on day one?

[Huw Williams]

Ladies first, Catherine.

[Catherine Cobden]

Are you calling on me? I didn't think it was for me.

[Chris Lewis, Conservative, Essex, ON]

No, I was asking Ms. King, please.

[Jackie King]

Mark, maybe I'll turn it over to you. You've been dealing with that quite closely.

[Mark Agnew, Director, International Policy, Canadian Chamber of Commerce]

Certainly what we've heard from our members is that it's a very tight time frame. I don't think anyone would dispute that it's something they're quite mindful of. Certainly, to take the overlay of the NAFTA changes plus CBSA having a number of programs it's implementing on the IT side from a user interface perspective, I think companies are quite mindful of navigating through that.

The rules of origin changes, I think, are probably the most totemic that companies are thinking about, both from the OEM perspective and of course we have the steel producers and aluminum producers as well and how they fit into that equation, too.

Last, there are some issues around the customs and trade facilitation provisions. The de minimis threshold will be increasing as part of the CUSMA. Of course, we're going to be now moving to a bifurcated scheme, where the de minimis levels for both the sales tax side and the tariffs side will now be split, whereas before they had been harmonized at the same level.

[Chris Lewis, Conservative, Essex, ON]

Thank you.

Mr. Williams.

[Huw Williams]

I'll take a slightly different tack at that. I think that for the car dealers the most important thing was that, as soon as the White House came up with the threat of 25% auto tariffs, I mean, that was “carmageddon”, potentially, for car dealers. Literally the impact of that would have been catastrophic on both sides of the border. It was a threat that we took very seriously.

Having the deal in place and getting rid of the potential side tariffs in the automotive side letter was a huge part of that in terms of relief. That took the pressure off.

It's now over to the OEMs to work those details out with steel producers and aluminum producers. We know, just from conversations with them, that those efforts are ongoing, but that's not really in our sector.

[Chris Lewis, Conservative, Essex, ON]

Thank you.

Do I have time for one more question, Madam Chair, or am I out?

[The Chair, Liberal, Judy Sgro]

Yes, you have two minutes.

[Chris Lewis, Conservative, Essex, ON]

Thank you very much.

This question is for Monsieur Simard. If I understood, I believe that your association is in support of CUSMA.

Because you have indicated that you support this deal, I guess one troubling aspect of this deal is that aluminum was not offered the same provision as steel, as you well know. That is the provision that, in order for it to be North American, the steel would have to be smelted and poured in one of three North American signatures. Mexico has no smelting capacity for aluminum. We've been told that, without this provision, imported aluminum that is unfairly subsidized and/or sold at bargain prices from countries like China may be dumped into the Canadian market.

Can you explain your support and what your association intends to do to ensure that this sector receives the support it needs from the Canadian government to ensure that you are not competing at a disadvantage?

[Jean Simard]

We have expressed our disappointment to that effect. We think we have to build from here on the basis provided by the USMCA global agreement and its protocol. We are asking the Canadian government to ensure, first of all, that Mexico sets in place a robust import control monitoring system, as Canada has provided as of September 1 of last year. Basically of the three countries that have agreed in their May 17 joint statement with the United States to set up such a monitoring system, only Canada has delivered the goods. I certainly salute Madam Freeland under her former responsibility and her department, which was able to come up with such a system within two months prior to the election.

Canada is the only country right now that has a system like this. We have asked the Canadian government to export that expertise to the U.S. and Mexico. We understand that in the budget announced by the White House a few days ago, somewhere hidden in the thousands and thousands of pages, is a line item to provide funding for setting up such a system within the commerce department. The U.S. is engaged with Canada to get Mexico to follow suit. That's one part of the equation.

The other part of the equation is the need to have a joint approach to monitoring the transit of metal. When you look at CUSMA, you look at a trading space where Canada is the only significant primary metal producer. The U.S. is the big market, not only for North America but for the whole world. Everybody is shipping to the U.S. because it's the highest net back. It's the highest price paid for aluminum in the world. The pressure is very strong to access this market, and as much as possible, to access it through either Canada or Mexico, which are duty free.

Mexico is the easy way in. Why? Because they're a buyer. They buy scrap from the U.S. and they buy billet from whatever the world wants to offer at the lowest price possible. They have been known—and it is documented—to let metal come in that has been rejected in the U.S., such as wheels most likely, that have been under a section 301 measure in the U.S. The same wheels have found their way into the continent through Mexico. We're talking about big numbers here.

We want administrations to ensure that no illegally traded metal finds its way in. We don't mind about competition on a level playing field. We do mind about illegal competition.

[Chris Lewis, Conservative, Essex, ON]

Thank you very much for that long two minutes.

[The Chair, Liberal, Judy Sgro]

It was because I thought the information was critically important, I let you go on.

Mr. Lauzon.

[Stéphane Lauzon, Liberal, Argenteuil—La Petite-Nation, QC]

Thank you, Madam Chair.

I was very pleased to hear Mr. Simard talk about the quality of the steel, but my question is more for you, Mr. Williams.

In the design of your vehicles, you must comply with fairly strict standards and rules. I come from the aluminum and steel industry. In its plans and specifications, this sector must meet quality standards. Do you focus on quality?

China will be dumping aluminum, and we often hear that it may be of poor quality. What quality standards do you need to meet in aluminum production?

[Huw Williams]

I appreciate the question. I'll let Mr. Dicko respond in French in just a second.

As a global commentary, the responsibility of ensuring the quality of the vehicles and the quality of the aluminum falls on the manufacturers. We represent the dealers in your riding. As franchise members, a lot of people don't understand that the individual dealers in each community buy the vehicles from the factories. They have the full range of responsibility for making sure those products meet the level of quality for international trade agreements or for safety or anything along those lines.

[Oumar Dicko, Chief Economist, Canadian Automobile Dealers Association]

Thank you for the question.

We care about the quality of the products used in what we sell. As Mr. Williams just said, the manufacturers must ensure that the steel and aluminum products that they use comply with the standards, in order to provide good quality products on the Canadian market.

[Stéphane Lauzon, Liberal, Argenteuil—La Petite-Nation, QC]

You can respond as well, Mr. Simard.

[Jean Simard]

Thank you.

Suppliers that sell aluminum to automakers must obtain certification for their product. If they stop delivering their product because of a labour dispute, as has already been the case, and they're unable to serve their customers for a year, they must obtain certification again. This cycle takes time, and it takes several months for them to be able to keep up with orders. It's very demanding.

[Stéphane Lauzon, Liberal, Argenteuil—La Petite-Nation, QC]

Mr. Simard, do you agree that the aluminum produced by Quebec or Canada is of high quality and is well-known in the automotive industry?

This constitutes an opening of the market to continue negotiations and move forward. You spoke earlier about something significant. We haven't built a plant in several years because of globalization and construction costs. Those are the two main reasons that you provided. You gave better explanations than I did, but that's the gist of it.

Don't you think that the signature of the new agreements could provide better outlets and foster the development of the aluminum industry in Quebec and Canada?

[Jean Simard]

The decisions to invest in projects that cost millions of dollars are based on basic market factors, some of which I listed earlier. There's the price signal and the cost curve in relation to the competition.

As long as the price of metal in the market hasn't fallen...The current price is between $1,600 and $1,700 per tonne. At $1,700 per tonne, about 10% of the global capacity is in the red, and at $1,600, that figure is 40%. No one will invest a single dime in projects, except in China, where they're giving out subsidies like candy to increase capacity and production.

[Stéphane Lauzon, Liberal, Argenteuil—La Petite-Nation, QC]

You gave a good explanation of the Chinese market. However, here in Canada, nothing in the agreement has prevented us or will prevent us from building plants. It has nothing to do with that.

[Jean Simard]

Absolutely.