Evidence of meeting #5 for International Trade in the 43rd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was agreement.
A video is available from Parliament.
President, Canadian Steel Producers Association
I'm not sure that would hold today, because we have had some changes in the ownership structure of the Canadian steel industry, which you may be familiar with.
Liberal
Chandra Arya Liberal Nepean, ON
But do you foresee the Canadian steel industry going outside of North American markets with exports?
President, Canadian Steel Producers Association
No, I really do believe that North America is our marketplace. That's how it shows up, that's how it's always showed up and that's why this agreement is really important to us.
President, Canadian Steel Producers Association
You have to appreciate that we produce a very heavy product, for one thing, and we're in the context of global overcapacity. I tried to describe that to you earlier. I think that our interests—and that's what served us so well in this agreement—are in the North American marketplace.
Liberal
Chandra Arya Liberal Nepean, ON
Mr. Simard, once again coming back to aluminum production, do you see the Canadian aluminum industry ever exporting outside of the North American market?
February 18th, 2020 / 6:10 p.m.
President and Chief Executive Officer, Aluminium Association of Canada
If I may take the time to answer, the highest-paying market in the world is the U.S. The U.S. consumes six million tonnes a year and produces 900,000 tonnes a year. We are part of a fully integrated continental value chain. There's no reason to go to other markets that offer a lower net back. It goes against business sense.
President and Chief Executive Officer, Aluminium Association of Canada
Excuse me. Can I finish?
President and Chief Executive Officer, Aluminium Association of Canada
We're exporting to the European market when the market is there. We're exporting to Asia when the market is there. Aluminum is like water. It follows the path of least resistance to reach the highest paying market, period.
Liberal
Conservative
Michael Kram Conservative Regina—Wascana, SK
Thank you very much to all of the witnesses for being here today.
My question is for Mr. Dicko and Mr. Williams.
We've talked a lot about a level playing field in the North American marketplace, but of course, Canada, the United States and Mexico are different. We have different labour costs. We have different electricity costs. We have different—you name it.
With respect to the auto sector, is there anything in the new NAFTA agreement that would favour long-term investment in the Canadian auto sector as compared to the United States and Mexico?
Director, Public Affairs, Canadian Automobile Dealers Association
If you look at the model that Mr. Dicko was referring to, the idea is to grow the North American pie. I'm not aware of any specific provision that would drive capacity into the Canadian marketplace versus other jurisdictions. In fact, if you look back at the last 18 investments made by international manufacturers, I think 10 of them went to Mexico and six of them went to the southern United States. It's a really competitive process and a competitive problem for Canada that we're not getting that level of investment.
Chief Economist, Canadian Automobile Dealers Association
I think we should use that opportunity, when we sign this free trade agreement, to create the kind of environment that's good for businesses and good for investment in Canada, to attract these investments. Instead of these investments going to Mexico or to the United States, they come to Canada.
Director, Public Affairs, Canadian Automobile Dealers Association
Just along that line, again, around the CAPC table, which, in addition to the ministers, has the CEOs of the five companies that manufacture in Canada and the parts makers, there's a consistent trend in how difficult it is when those CEOs are trying to sell Canada as a proposition. Governments have tried to make it one-stop shopping and tried to make it more competitive, but I just think we need a renewed emphasis on this.
The former CEO of our organization was a president of an OEM before coming over. He tells stories of trying to sell the Canadian proposition to Germany and how different that experience was for his American counterparts trying to bring investment there. We haven't historically been in the ball game. When you look at the level of investment at 7%, long term, it's not sustainable for us.
Conservative
Michael Kram Conservative Regina—Wascana, SK
Why is the level of investment so much lower in Canada compared with the U.S. and Mexico? I would have expected it to be a lot higher than 7%.
Director, Public Affairs, Canadian Automobile Dealers Association
If you look at the level of production—and Oumar can speak to this in detail—we're producing as many cars as we buy. The Canadian market is $1.9 million, and I think there's two million dollars' worth of production in there. We're not out of sync with respect to that, but when you look at the capacity that we could have and those investments that have come to the country, that's where we're missing the competitive piece.
Some of it is about red tape, as the member from Oshawa was outlining. Some of it has been not having coordinated one-stop shopping from the Canadian government and the provincial governments. The U.S. states are very competitive when they make offerings to try to get these investments, because the math is pretty straightforward. One automotive-related manufacturing job leads to seven other jobs in the economy when you look at the supply chain. I think as policy-makers, this committee and all members of Parliament need to look at whether we're putting a competitive offering together when we're trying to attract investment.
Conservative
Michael Kram Conservative Regina—Wascana, SK
All right.
Mr. Williams, I think it was in your opening statement that you talked a little about the luxury taxes on cars. Is that a trend that we have seen on both sides of the border or just in Canada or Mexico, for that matter?
Director, Public Affairs, Canadian Automobile Dealers Association
The U.S. Congress, as I mentioned, put that 10% luxury tax on the exact same products in the nineties. The Clinton administration ended that tax because it wasn't generating revenue, and it was catastrophic for industry. The Parliamentary Budget Officer has looked at this and done a fair assessment of this provision as part of the costing for election promises, and has highlighted the uncertainty and—Oumar would know the economic term for it—the flexibility of demand when people are looking at those vehicles.
This tax is not going to hurt the rich. It's going to hurt the individual car dealer who has already bought inventory for this year last year, without knowing about the tax, and they've already invested in their building for the next 10 years. It's going to hurt the service techs and the sales folks who aren't going to be part of that provision. I think it's particularly out of sync, as well, when you look at the EV market. EVs are luxury and it has typically been the segment of the market that brings together the highest range of technology before putting it down through the rest of the lineup. We've certainly seen that on the EV side of the equation, so putting a luxury tax on EVs is a potential problem.
Our ideal situation would not be to have this luxury tax imposed, but if it is going to be imposed, wait three years for the industry to adjust to it and think about, instead of a 10% tax rate at dollar zero, do it on a marginal tax rate so that you're not getting that cliff of 10% tax starting at $100,000. I think in your neck of the woods, in Regina and Saskatchewan, it doesn't take a lot if you're driving an F-250 or an F-350 and you're using it for construction to get a vehicle in that price range. Again, the disadvantage is the obvious challenges with respect to economic growth and parity.
Liberal
Liberal
Terry Sheehan Liberal Sault Ste. Marie, ON
Thank you very much.
Thank you very much for all your testimony on the importance of this trade deal.
Catherine from the Canadian Steel Producers Association, you highlighted the importance of the team Canada approach in the face of the section 232 tariffs, and I acknowledge the work of the United Steelworkers who testified before you. As well, the Chamber of Commerce played a very significant role on a national level, but at a local level, including Rory Ring from the Sault Ste. Marie Chamber of Commerce, we all marched arm-in-arm in this trade war—a lot of them don't call it that but it was—with the chamber, unions, businesses, individuals, local politicians, so many to name. I think that was critical, because some trade pundits had said that Trump wouldn't use those tariffs, but he did. He hit steel with 25%, and aluminum with 10%. We found that the President likes to use them, because with the stroke of a pen, he can introduce them.
Again, some trade pundits are saying now that the United States has signed this agreement—both the Democrats and the Republicans have come together to sign this, and Mexico has signed it—if Trump thought that Canada was not moving forward expeditiously, as some people have said, or quickly, he could reinstate tariffs on steel and aluminum. What impact would a reinstatement of these tariffs on the steel and aluminum industries have for your industries if that were to happen, and not only the 25% or 10%? As you've seen with China, he ratchets up.
I'll take comments from you first, Catherine, and then I'll move to Mr. Simard.
President, Canadian Steel Producers Association
Thank you. Also, you did a great job of acknowledging team Canada in a more expanded way. As we know, it really was an all-out effort by so many—way too many to name—and it's greatly appreciated.
The tariffs at 25% on steel for a year were devastating, and we're still on our heels. I don't want to oversell our return from tariffs, post-tariff. We were put on our heels and we remain on our heels. Coupled with poor and difficult market conditions, it's not fun times yet in the steel sector, but this agreement moves us forward. It's extremely important to us that we do move forward in our relationship with the U.S. at this level. I know that nothing is perfect. I know there's a potential risk of tariff, but in our view, we have to act in a manner that does everything possible to eliminate the risk of tariff. It would be devastating.
President and Chief Executive Officer, Aluminium Association of Canada
I don't have much to add to what Catherine just said. It would be chaotic for us. We work on yearly contracts. If you pop in a tariff, it just destroys the relationship with your client. You have to find ways to factor it in. It becomes very complex, and it's already very complex. It would be very disruptive for the value chain.
Just to give you an idea of the complexity, for all those countries that are still under tariffs for aluminum, which is the rest of the world except Argentina and Mexico, on the day that one of them is out and exempted from the tariffs, it changes the dynamics of the market completely, and it is going to take weeks and months to find out where the market is going.
We are in a very sensitive play with the U.S., with the world market and with the U.S. market, which is the highest net back. Everybody wants to get their metal there. Today, the metal comes from the Middle East, it comes from India and it comes from Russia. It comes from everywhere because it's a lucrative market for those countries. It's better than all the other markets. When you tip the pricing with a tariff, it's a big upset for the market, and it's very bad for us.
