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 steelmakersone of whom spoke openly Thursday about how accessible Trudeau's cabinet has been.

Alan Kestenbaummet Prime Minister Justin Trudeauin his Parliament Hill office for a photo call. As cameras rolled, the executive chairman of Stelco Inc. thankedthe 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 afterthe 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, steelmakerswantmore.

"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 foundinsufficient evidence to justify continuing emergency safeguards on five of the seven categories of foreign steel it investigated,including some steel that could competewith Stelco's products.

The panel's report means that on April 28, thisextra protection a 25 per cent provisional surtax whencertain 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, askedthe 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 aterrible idea to continue protectionist actions like this.

Construction jobs at risk

Take rebar, for examplethe reinforcing steel used in building construction. Extra costs and budget uncertaintiescaused bythe surtax on rebar makeit 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 aTrudeau government priority.

"The bidding process this spring has been very slow,"said AnoopKhosla, the managing director of MidvalleyRebar 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 costof recent projects, he said. Because contract pricing is often fixed in advance, suppliers not customerstake theearly hit.

The true impact on jobs hasn't been felt yetbecause so much construction wasalready in the pipeline when the tariffs kicked in. But it's cominglikely later in 2019, Khosla said.

Foreignsteel is commonin B.C. construction because the cost of shippingOntario 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 Morneautechnically couldoverrule Canada'squasi-judicialtribunal, "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."

Thattrade retaliation wouldn't targetCanada'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," Goldmansaid. "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 justifymore 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," Goldmansaid a "strawman" to which Canada can never adequately respond.

Plus, the more assistanceCanada 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, Goldmansaid. The major threat remainsthe disruption to their American business, which this surtax doesn't help.

Back in the prime minister's office yesterday, Kestenbaumtold 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 2017such a strong performance,in fact, that Stelco investors were rewarded withspecial a cash dividend of $100 million.