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Michael McQuade's remarks to the Parliamentary Committee on International Trade

March 21, 2017 – Representatives from the Canadian Steel Industry, including Stelco President and General Manager, Michael McQuade, appeared in Ottawa, in front of the Parliamentary Committee on International Trade to discuss the industry's ability to compete internationally. Mr. McQuade and his colleagues responded to questions from Members of Parliament regarding global over capacity in the steel industry, the need for strong trade rules to combat illegal and subsidized imports, and the importance of the Canada-US trade relationship.

Mr. McQuade's opening remarks are below.

Good afternoon Honourable Members of the Committee,

My name is Mike McQuade, and I am the President and General Manager of Stelco. I would like to thank you for the opportunity to speak to the viability of the Canadian Steel Industry and Stelco in particular.

Stelco has a history of building Canada and the landmarks that dot our landscape. For over 100 years our steel has contributed to the growth of our nation both structurally and economically.

From the cars we drive, to the pipes supporting our energy resource sector; from the Canadian Coast Guard College and Saint John Regional Hospital in the east, to the Regina Agridome and the Calgary International Airport in the west; all the way to the tip of the CN Tower – Stelco steel can be found in plain sight from sea to sea.

The past dozen or so years have proven to be tumultuous ones for our company. Stelco emerged from creditor protection in 2006 during an unprecedented up cycle in the global steel market without having addressed the fundamental issues that led the Company to initially enter creditor protection under CCAA in 2004.

In 2007 U.S. Steel acquired Stelco and transformed the operations into a satellite manufacturing location centrally managed from Pittsburgh. Stelco maintained little control over market development, raw material sourcing or ultimately our profitability. U. S. Steel’s operating allowed Stelco’s traditional markets to be served from a variety of locations. This became the corporate strategy when on three occasions in the past ten years our business was subjected to prolonged labour disruptions as U. S. Steel endeavored to bring wages in line with North American standards.

However, being part of a multi-national company did afford Stelco the opportunity to weather the financial crisis that commenced in late 2008, and to benchmark and enhance operational excellence.

Today our employees are safer than ever before. In 2007, there were almost 600 recordable injuries at our combined operations. At the end of 2016, only 9 cases were recorded. This improvement is a measure not only of vastly improved safety performance, but it reflects a core philosophy of our business – employees are valued, not just views as an expense.

Similar results can be seen in our environmental performance. Over the past decade we have continuously reduced our emissions through capital investment, operating practices and training for our employees. At our Hamilton facility, this has translated into an 87% reduction in air opacity incidents since 2007, and a 97% and 95% reduction in water and ground incidents respectively.

We have also invested to support the development of the next generation of high strength steels, positioning Stelco to work with our customers – in particular in the automotive sector – and to develop and manufacture the cutting edge steels that they will require in the coming years. In fact, over the past five years Stelco has developed the technology and processes to manufacture twenty different grades of these lighter, stronger, future-ready steel products.

All this is to say that Stelco sits poised to complete with any company around the globe upon the successful completion of our current restructuring under creditor protection. We will have addressed the balance sheet issues and legacy obligations that will enable Stelco to be a competitive stand-alone business.

Stelco will have new collective agreements with its unions to provide labour security for the foreseeable future. Our balance sheet will be clean. Our cost of production will be low. And we will be positioned well to compete in the North American marketplace.

Which brings us to our discussion here today.

As I sit here before you, I can attest that there exist many challenges facing our business that will impact our ability to compete internationally. Of particular concern are recent developments in the Canada-US trade relationship.

I think there is mutual agreement that we are entering into a critical period with respect to our bilateral relationship with the United States. With the prospect of a renegotiation of NAFTA looming, and provisions requiring steel to be melted and poured in the US expanding beyond the traditional scope of the Buy America program and into other areas of procurement and the private sector, Canadian industry has reason to be concerned.

Prior to the 1987 Canada-US Free Trade Agreement, both countries placed tariffs on steel products crossing the border and the cross-border integration of our customers (such as automotive) was substantially less. The combative approach to trade and the restrictions embedded in American law at the time constituted a major impediment to Canadian steel’s access to the US market.

The Canada-US agreement recognized that our economies would mutually benefit from a reduction in trade restrictions. The solution was an agreement to less-restricted steel trade through the removal of tariffs on steel in both directions; by removing non-tariff barriers; and by providing national treatment for each other’s products.

These principles were further enshrined and should remain as cornerstones of NAFTA, and of any future agreement with the United States regarding the steel industry.

While I am encouraged by the position taken by our government during these early days of the new US Administration, I believe our focus should be on increased collaboration with our largest trading partner. We should be working together to encourage growth in manufacturing in both our respective countries.

The re-introduction or the expansion of barriers to trade must be prevented. Our industries and our economies are both best served by an integrated trade relationship that is based upon foundation of market principles and strong trade rules. Together we should work with our American partners to limit the ability of dumped or subsidized imports from countries who do not share those principles from distorting our domestic markets and displacing North American production.

It is my hope that the budget being tabled tomorrow by Minister Morneau will incorporate measures to modernize our domestic trade remedy system so that we can work hand-in-hand with our partners in the US to achieve this goal and to combat global overcapacity.

It has been recognized by the OECD and governments around the world that substantial overcapacity exists in the global steel industry. China alone has the capability of producing over 400 million more metric tonnes of steel than its economy demands. The export of surplus steel around the globe results in depressed pricing, displaced domestic production and a reduced market share for local producers.

As Stelco looks towards the future, our future growth is directly tied to North America. The economics of shipping steel over vast distances generally do not measure up when true market principles are applied. It is in the integrated Canada-US market that we see the greatest opportunity for Canadian steel in the coming years.

Stelco’s supply chain is one that tells a true bi-national story. Our business requires reciprocal access to the US market. The vast majority of our raw materials come from the northern United States – iron ore from Minnesota and metallurgical coal from the Appalachians. Our high quality steel products from Hamilton and Nanticoke, Ontario, are in turn shipped to customers on both sides of the boarder. Any break in this supply chain caused by a thickening of the Canada-US border would be catastrophic to our business and place the future employment of more than 2,000 steelworkers in jeopardy.

Of course the impact of our business is felt well beyond those whom we directly employ. Hundreds of contractors are on-site at our facilities every day. Businesses in Hamilton and Nanticoke rely on our employees for survival. Our 15,000 pensioners depend on our continued success to ensure their pensions remain sustainable and secure.

I sit here before you as the President of a company prepared and well positioned to succeed, but we will need the help of government to ensure that our supply chain is not compromised by the thickening of the Canada-US border in the near future. We will need your support to pass legislative changes to modernize our trade remedy system so we may continue to fight illegally imported steel products. And we will need your cooperation in working with international partners to address the issue of global overcapacity in the steel industry.

On behalf of the more than 2,000 employees and all stakeholders who have a vested interest in the long-term success of Stelco, I would once again like to thank the Chair and the Members of the Committee for welcoming the steel industry here today and for demonstrating leadership by studying the importance of our ability to compete internationally.

Thank you.