The Importance of Rules-Based Commerce
Steel markets — whether in Canada, North America, or elsewhere around the world — are increasingly shaped by the forces of globalization and by competition from producers beyond their borders. Although steel is relatively heavy and costly to transport, there are significant and growing volumes of international trade in steel and steel products.
In principle, this trade is positive for both steel producers and steel users. Market-based trade matches the various types of steel products with customer needs across a range of product applications, increasing value throughout the supply-chain for many industries.
Over one-third of global steel production is traded internationally, and in Canada, over 60 percent of the steel consumed domestically is imported. On balance, Canada is a net importer of steel.
However, these trade flows are not simply the competitive result of normal market forces. The global steel industry continues to be plagued by structural overcapacity. Many countries, including those experiencing high growth rates, produce far more steel than they consume. This is especially the case with China, which has overcapacity more than twice the entire NAFTA market, but several other countries are increasingly contributing to the growth of excess steelmaking capacity globally. The problem is exacerbated by State-Owned Enterprises (SOEs), owned and controlled by governments that are striving to develop a steel industry to serve both internal needs and to export to open markets in Canada and elsewhere.
The result can be market-distorting imports that are dumped into the Canadian market, the most open steel market in the world. Thus, foreign subsidies and other trade distortions undermine the ability of Canadian firms to compete domestically and in potential export markets according to commercial competitive principles.
Major trade distortions in steel fall into two broad categories: Subsidies and Dumping.
Subsidies occur when a government intervenes in a steel market to provide artificial advantages to a domestic company, either directly or indirectly. This may occur through SOEs. Government subsidies contribute to global excess capacity by helping less competitive steelmakers gain market share and remain in business at the expense of market-based competitors. These interventions can take the form of direct financial assistance (grants, loans) or more indirect forms of support, such as quotas. These artificial advantages distort markets by enabling subsidized companies to compete unfairly against companies that produce and sell their products based on economic realities, investment risk/return, and market forces.
Dumping occurs when a company sells a product into a foreign market at either (a) less than the cost of production, or (b) less than the selling price in the company’s “home” market.
Both types of trade distortions run counter to genuine free market forces, and both practices are prohibited by the agreed rules of international trade in the World Trade Organization (WTO).
Trade distortions make it necessary for affected companies and their governments to enforce fair trade through the use of trade laws and trade remedies. In Canada, these matters are adjudicated on a case-by-case basis by the Canadian International Trade Tribunal (CITT).
Canadian steel producers are prepared to compete based on fair and open markets, and will continue to challenge unfair market distortions. Long-term progress on this problem will require that trade rules be strengthened and strongly enforced, and that meaningful action is taken to address the growth in excess capacity that continues in many steel producing countries.
Working Together in North America
The steel sector is an integral part of supply chains that underlie the integration of the North American industrial economy. In 2012, total NAFTA steel production was 129.6 million net tons (with a value of $99.8 billion). While 3.7% above 2011, it remains almost 3% below 2008 levels and 10% lower than seen in 2007. NAFTA is a large net importer of steel from countries outside of the region. In 2010 and 2011 net imports rose to 18.5 and 20.1 million tons, respectively. In 2012, imports rose further to reach 25.8 million tons.
Starting with the initial Canada-United States Free Trade Agreement in 1988, and followed by the North American Free Trade Agreement (NAFTA) which came into effect in 1994, Canada’s steel industry has played a significant role in the evolution of North American free trade since then.
Within NAFTA, steel trade flows are roughly balanced, and steel companies in all three member countries compete for and work with common customers as well as relying on common sources of raw materials. Many producers have facilities in two or three NAFTA countries. The steel sector has been a model of NAFTA cooperation and—importantly—shared benefits for each country.
Recognizing the strategic value of steel production to the NAFTA region, in 2003 the three NAFTA governments created the North American Steel Trade Committee (NASTC) to coordinate government and industry actions to jointly enhance the conditions for continued growth and prosperity for steel in the region. As leaders of the three countries have agreed, the NASTC underlies “a strategic partnership for a strategic industry.”
The NASTC process brings together both governments and industry from the three countries to discuss public policies important to the competitiveness and growth of the NAFTA steel industry. The NASTC focuses on three key areas:
- External Trade
- Internal Trade
Building on the NASTC and other work, the NAFTA steel sector advocates that the three governments address trade distorting and WTO-inconsistent practices, including the global excess capacity issue; continue efforts to enhance the efficient and cost-effective movement of goods and people across the regional borders; harmonize and reduce regulations that place administrative and cost burdens on steel producers.
Canada is building on the foundation established by NAFTA, with the recent Canada-U.S. “Beyond the Border” joint declaration of a shared vision, to achieve even greater economic efficiencies that will strengthen North American industrial competitiveness vis-à-vis other trading regions. This includes collaborative initiatives and policies on cross-border trade and infrastructure, transportation systems and regulations, and environmental policies that specifically address the competitive implications for energy-intense, trade exposed sectors in any new greenhouse gas and other environmental regulations. The first “Beyond the Border” Implementation Report was released in December 2012, summarizing significant progress made to advance shared interests in perimeter security and economic competitiveness.
Internationally, the CSPA collaborates with other steel-producing nations towards agreements to eliminate or greatly reduce market-distorting subsidies. In cooperation with the federal government, the CSPA is actively working to address these problems in the WTO and in the Steel Committee of the Organization for Economic Cooperation and Development (OECD).
Canadian Steel Statistics (2012)
Production: 13.5 million tonnes
Apparent Domestic Consumption (ADC): 16.6 million tonnes
Imports: 9.9 million tonnes
Exports: 6.9 million tonnes
For more information, visit the NAFTA Steel Trade Monitor.