Construction industry warns Trudeau not to extend surtax on foreign steel

Canada's construction industry is warning the federal government not to overrule its trade tribunal and extend a surtax on five types of foreign steel, as a fierce lobbying campaign continues by domestic steelmakers — one of whom spoke openly Thursday about how accessible Trudeau's cabinet has been.

Alan Kestenbaum met Prime Minister Justin Trudeau in his Parliament Hill office for a photo call. As cameras rolled, the executive chairman of Stelco Inc. thanked the Liberal government for being "supportive in every way," saying ministers can be reached "by cellphone, by text, and have been extremely responsive and understanding."

So far, his industry's sustained lobbying has landed a $2 billion assistance package for steelmakers, announced last summer after the Trump administration imposed steel and aluminum tariffs for "national security" reasons.

The Canadian government is "working almost daily in meetings with American officials to try and get those tariffs lifted," Trudeau told the cameras Thursday.

But there's no sign the U.S. is ready to budge. And in the meantime, steelmakers want more.

"The past support we've had from the government ... the quick, decisive actions, have been very, very helpful, but things have changed," Kestenbaum said.

What did he mean?

On April 3, the Canadian International Trade Tribunal found insufficient evidence to justify continuing emergency safeguards on five of the seven categories of foreign steel it investigated, including some steel that could compete with Stelco's products.

The panel's report means that on April 28, this extra protection — a 25 per cent provisional surtax when certain non-U.S. imports rise above historic levels — is set to end, unless Trudeau's government decides to intervene.

That's exactly what Canada's steel producers, and the United Steelworkers union, asked the federal government to do last week.

Finance Minister Bill Morneau's office is still reviewing the tribunal's advice.

But businesses that need a reliable supply of foreign steel say it would be a terrible idea to continue protectionist actions like this.

Construction jobs at risk

Take rebar, for example — the reinforcing steel used in building construction. Extra costs and budget uncertainties caused by the surtax on rebar make it hard to deliver critical public infrastructure projects on time and on budget.

On Canada's West Coast and in Toronto, it's starting to get in the way of increasing Canada's supply of affordable housing — a Trudeau government priority.

"The bidding process this spring has been very slow," said Anoop  Khosla, the managing director of Midvalley  Rebar Ltd. in Surrey, B.C. "There is definitely hesitation from the developer [and] contractor community."

Tariff and safeguard actions have added between 18 and 30 per cent to the cost of recent projects, he said. Because contract pricing is often fixed in advance, suppliers — not customers — take the early hit.

The true impact on jobs hasn't been felt yet because so much construction was already in the pipeline when the tariffs kicked in. But it's coming — likely later in 2019, Khosla said.

Foreign steel is common in B.C. construction because the cost of shipping Ontario steel by rail can be prohibitive. Under the surtax, Khosla said, "literally we have lost all our sources of supply from offshore."

"If Mr. Trudeau ... is trying to put all his money into infrastructure here, the amount of work he's going to get done is going to be reduced drastically."

In a release Thursday, the Canadian Coalition for Construction Steel said it's expecting Morneau to give "fair and careful consideration" to the tribunal's recommendations.

"The continuation of exceptional quotas and tariffs on fairly traded steel imports would harm the Canadian construction sector and the thousands of Canadian workers it employs," it said.

Risk for Canadian exports

While Morneau technically could overrule Canada's quasi-judicial tribunal, "it's quite a craven request," said trade lawyer Jesse Goldman, who participated in the tribunal's hearings on the construction coalition's behalf. "It would be bordering on inconceivable."

"I think it would be called on the carpet by other [World Trade Organization] members," he said. "It would attract quick and I think pretty severe trade retaliation from a number of Canada's trade partners."

That trade retaliation wouldn't target Canada's steel industry, however: it exports primarily to the U.S.

"Canadian beef and pork farmers would immediately feel the pain in a number of Asian markets, and potentially the European Union. Like, within weeks," Goldman said. "Unfortunately the steel producers and the union conflate their own interests with the country's interest, and they're not the same."

If Morneau wants to protect Canada's steel industry, he could self-initiate another kind of trade remedy case to justify more duties based on unfair subsidies or pricing. He also could observe the required waiting period (until next fall, perhaps) and then try again to find evidence to support another round of emergency safeguards.

But Canada already has a lot of anti-dumping remedies in place for foreign steel — more than even the U.S., in terms of product and country coverage, Goldman said.

American complaints about "transshipments" — cheap steel entering the U.S. using Canada as a back door — are "unspecified and largely unidentified," Goldman said — a "strawman" to which Canada can never adequately respond.

Plus, the more assistance Canada gives its own sector through things like its Strategic Innovation Fund, the harder it is for Canada to criticize other countries for subsidizing steel.

Non-U.S. imports aren't a serious threat to Canadian steelmakers, as the tribunal correctly found, Goldman said. The major threat remains the disruption to their American business, which this surtax doesn't help.

Back in the prime minister's office yesterday, Kestenbaum told Trudeau that his government has helped steel producers "really operate well in this very, very difficult environment."

Stelco Inc.'s recent fourth quarter results show how helpful high domestic prices and robust demand can be: its revenue and operating income are up dramatically from the fourth quarter of 2017 — such a strong performance, in fact, that Stelco investors were rewarded with special a cash dividend of $100 million.