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SUBMISSION: ICBA Pushes Back Against Ottawa’s Plans For Steel Tariffs

The following was submitted by ICBA to the federal government, regarding our concerns over B.C.’s steel supply.

By way of background, the Independent Contractors and Businesses Association (ICBA) has been the leading voice of British Columbia’s construction industry for 43 years, representing more than 2,300 members and clients who collectively employ over 50,000 people. ICBA advocates for its members in support of a vibrant construction industry, responsible resource development, and a growing economy for the benefit of all British Columbians.

Together with other national and provincial industry associations, ICBA is writing to express our concern about the potential for “safeguard measures” which would further limit steel imports through tariffs or quotas. We are very concerned that any additional measures to restrict supply, and thereby increase costs, would have profoundly detrimental impacts on the Western Canadian construction industry generally, and British Columbia in particular.

The government’s examination of “safeguard measures”, while somewhat understandable in the context of the current trade dispute with the United States, comes on the heels of a 25 per cent tariff imposed on imports of US steel earlier this summer and previous measures imposed on steel imports from China, Korea, Japan and Hong Kong in 2015. As a result, construction service providers have been on the receiving-end of substantial cost escalations, which, in the final incidence, must be passed onto consumers or absorbed by firms through layoffs or cuts elsewhere in their businesses. It also occurs amidst two long-standing fundamental “supply-side” constraints facing BC-based construction firms sourcing steel and related products:

  • There is no steel mill in British Columbia. In fact, the closest source of steel for BC’s construction industry is a firm in Edmonton, AB which is able to supply only 10 per cent of BC’s demand. It is not in a position to fulfill any further BC requirements; and,
  • Transportation and logistics challenges militate against meeting BC’s demand from Eastern Canadian steel mills. The hard reality is that BC must continue to source its steel from the US, Turkey, and Asian markets. Steel sourced from Eastern Canada typically costs four times more to ship via rail versus sourcing from external markets by ocean freighter.

As your government considers “safeguard measures” in the form of tariffs or quotas, it is important to highlight some key risks inherent in further restricting supply and increasing costs for steel in British Columbia and Western Canada:

  • British Columbia – especially Metro Vancouver, Southern Vancouver Island, and the Central Okanagan – continues to experience robust construction activity. Any further increases to tariffs or restrictions on supply through quotas will drive up costs in areas of our province already facing affordability challenges, especially in housing markets;
  • BC’s position in steel re-manufacturing may already be at a competitive “tipping point” in some cases. The concurrent effects of the high land prices, high marginal effective tax rates (METR) relative to other jurisdictions, increased taxes and regulation, and severe competitive challenges brought about by massive tax reductions south of the border under the US Tax Cuts and Jobs Act passed in late 2017 have compounded an already challenging competitive environment for many firms. Anecdotally, increasingly there are project cancellations (especially in the housing market) and consideration being given by some firms to re-locating operations to Washington and other Western US states;
  • Shortages are already apparent since your government imposed retaliatory tariffs in July, and further measures will impair construction activity planned for Spring 2019, raising concerns about adequacy of supply for projects underway (e.g. Site C Dam) along with those commencing (e.g. Trans Mountain Pipeline expansion), among many others.
  • The federal government plans to undertake significant federal-provincial, shared-cost infrastructure over the next few years including, for example, the Broadway Skytrain extension and Surrey light rail rapid transit projects (among others). “Safeguard measures” for Eastern Canadian steel producers would, therefore, present federal and provincial taxpayers with higher construction material costs; and,
  • Apart from the general effects on a number of resource projects, BC (and Canada) are on the cusp of two potential positive final investment decisions for Liquified Natural Gas (LNG) plants on the West Coast. These projects will transform BC and Western Canada’s natural gas industry by opening up the vast Asia Pacific marketplace to domestic producers, and by reducing Canadian reliance on our traditional – and now saturated – US markets. Ensuring positive FIDs is, therefore, clearly in the national interest. Any “safeguard measures” designed to assist steel producers should carefully account for the “game-changing” importance of BC LNG plants for Western Canadian natural gas exports, job creation, and increased tax revenue for federal and provincial coffers.

A potential solution may be to consider a differentiated approach which continues to allow imported steel products from Asia and elsewhere into the extremely trade-dependent and supply-constrained BC and Western Canada marketplace without further tariffs or quotas, while (perhaps) pursuing safeguard measures “ringfenced” to Eastern Canadian construction markets. This requires further examination.

To conclude, we encourage you and your colleagues to consider two final points:

  1. Your consultation process on further “safeguard measures” for the steel industry – while very welcome – is rushed. We encourage your government to take more time to consider the potential consequences of “safeguard measures” on British Columbia and Western Canada’s resource and construction industries.
  2. Given the critical importance and pressing nature of this issue, we respectfully request a meeting at your earliest convenience with ICBA and other affiliated interests to discuss this matter, especially the importance of ensuring price-competitive access to “rebar” (and other product classes).

On behalf our members, thank you for the opportunity to comment on the critically important issue of whether your government should take further steps to prevent diversion of steel products into Canada through further tariff or quota “safeguard measures”.

While we understand your government is facing challenging NAFTA negotiations and fallout from trade sanctions initiated by the US administration, we are deeply concerned that “safeguard measures”, if implemented, will unduly restrict competitively-priced foreign supplies of steel, drive up costs for construction service providers and consumers, and impair construction activity which is a key driver of BC’s economy.

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