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Although steel consumption and imports are on the rise, Canadian steel production and exports have not kept pace since the recession — far from it
Last week, U.S. Steel announced that it will permanently end steel production at its Hamilton plant. Is steelmaking a “smokestack industry” suffering from inevitable decline, or a strategic industry that Canada should seek to defend and develop?
Steel is an indispensable material for every aspect of our traditional economy, including bridges, buildings and cars, but also our growing sustainable economy, from transit vehicles to wind turbines.
Canada needs steel and we have been importing more of it. Last year, our steel imports rose to $12.2-billion — the highest level in Canadian history except for $12.4-billion in 2008, at the height of the commodity boom.
Although steel consumption and imports are on the rise, Canadian steel production and exports have not kept pace since the recession — far from it. We imported $4.6-billion more steel than we exported last year, tying 2006 for the largest steel trade deficit in Canadian history.
If it were more economically efficient or environmentally sustainable to manufacture steel elsewhere, it might make sense for imports to replace domestic production. In fact, Canadian steel mills are close to iron ore mines and to North America’s steel consumers. Given the large amount of energy needed to transport iron and steel, there is a strong economic and environmental case for making steel close to these sources of supply and demand.
Yet Canada imported more than $1-billion of steel from China, $400-million from Japan and $300-million from South Korea last year. Does it make sense to ship iron ore across the Pacific to these countries and then ship steel across the Pacific to Canada?
These Asian countries do not have a natural comparative advantage in steelmaking but they have used industrial policy, currency manipulation and subsidies to develop their industries. In particular, China has gained an unfair competitive advantage by undercutting internationally recognized labour and environmental standards.
Producing a ton of steel in Chinese mills emits three times as much greenhouse gas as producing it in Canadian mills. And that does not even consider the emissions from shipping steel across the Pacific. One of the best ways to fight climate change would be to replace steel imports from China with steel made in Canada.
Steel companies continue to bring trade cases against Chinese steel under Canada’s Special Import Measures Act. But unlike the comparable American legislation, it does not allow Canadian workers and unions to participate in this process.
The Act allows countervailing duties against financial subsidies from a foreign government, but not against the unfair cost advantage provided by a foreign government violating labour rights and environmental obligations. Reforming our trade law would help to level the playing field between Canadian steel mills and overseas imports, enabling more domestic production.
Unfortunately, Harper’s overall strategy of a low-wage economy, including the overuse of temporary foreign workers, values shareholders’ interests over Canadian jobs and has caused the Conservatives to ignore or make meaningless any concept of “net benefit to Canada.”
Foreign investors took over every Canadian steel mill in 2006 and 2007. Another way to promote steelmaking in Canada is to enforce the commitments that were made under the Investment Canada Act to gain federal approval for these takeovers.
When U.S. Steel took over Stelco in 2007, it pledged to employ 3,100 workers and produce 13 million tonnes of steel in Canada through 2010. After much public pressure, the federal government took the company to court for violating these obligations. However, the Conservative government dropped the lawsuit against U.S. Steel in exchange for further promises. Last week’s announcement makes a mockery of that settlement and underlines the Conservative government’s lack of commitment to Canadian jobs.
Using Hamilton’s coke oven to feed American steel mills rather than to produce steel in Canada may be a rational business decision for U.S. Steel’s continental operations. But it is a bad decision for the Canadian economy and Canadian workers. That is why we have the Investment Canada Act – to reconcile the interests of foreign multinational corporations with Canadian interests.
Ottawa’s lack of response to U.S. Steel is not only deeply disappointing to Hamilton steelworkers, it sets a terrible precedent for other foreign-owned enterprises in Canada. Since foreign investors recently took over every Canadian steel mill under the Investment Canada Act, the federal government’s willingness to enforce this legislation is crucial to the industry’s future.
We should maintain and improve Canada’s steelmaking capacity because there are real economic and environmental advantages to manufacturing steel here rather than importing it from overseas. Revamping the Special Import Measures Act and the Investment Canada Act would help to renew this strategic industry.
Marty Warren is Director for Ontario and Atlantic Canada and Leo W. Gerard is International President, United Steelworkers.
For the original version of this column, click here: http://opinion.financialpost.com/2013/11/05/canada-needs-a-steel-strategy/