Question Period Note: SUPPORT FOR THE STEEL AND ALUMINUM SECTORS

What is the Government of Canada doing to protect the domestic steel and aluminium industries from the impacts of excess production capacity?

• Steel and aluminium form the basis of Canada’s infrastructure, are the backbone of manufacturing, and essential inputs for securing Canada’s energy future – and they generate high-quality Canadian jobs.
• The Government of Canada is committed to tackling global excess capacity, which undermines competition and disrupts the free flow of fairly traded goods and services.
• Canada is standing with its allies and trade partners in opposition to subsidized, carbon intensive imports from China.
• Canada’s imposition of a 25% surtax on steel and aluminum products imported from China is an important step in addressing excess global capacity and leveling the playing field for Canadian producers.

Global excess production capacity

Excess capacity is described as the build-up of production capacity that does not respond to market demand or price signals. This facilitates and incentivizes over-production and over-supply, leading to trade distortions and market disruptions, including supply/demand imbalances, demand saturation, low prices, weak profitability, localized job losses and increased environmental degradation. Countries with significant excess capacity are typically non-market environments supported by government policies and practices that shield them from market conditions. Producers in market economies, meanwhile, subject to the discipline of market cycles and price signals, are hard-pressed to compete against nationally backed state-owned enterprises who do not need to concern themselves with profitability.

China’s steel production capacity accounts for approximately half of global capacity, while their share of global aluminum production capacity has grown to 57 percent as of 2023. Even a small imbalance in their production can lead to global exports greater than Canada’s entire national production in a given year. Furthermore, countries who are subsidizing steel capacity for which there is insufficient demand are also subsidizing high carbon steel production. These high carbon steel products are eroding the competitive position and profitability of domestic producers making it harder for them to have sufficient capital to invest in decarbonization initiatives.

 
Canadian surtaxes on steel and aluminum

On August 26, 2024, a notice of intent was published by the Department of Finance (FIN), outlining that a 25 percent surtax is being imposed under section 53 of the Customs Tariff Act to certain steel and aluminum products imported from China. Following a public comment period, the final list of products to be covered was published on October 1 and the surtax is effective October 22, 2024. Measures will be reviewed within a period of one year from their entry into force. Canada also indicated intent to implement a framework to consider requests for surtax relief, with details being published prior to the surtax’s entry into force. FIN is developing advice on a remission framework (subject to separate decision and announcement by Minister of Finance).

Global Forum on Steel Excess Capacity (GFSEC):

Established in December 2016 under the OECD, the GFSEC is an international platform to combat excess steel production capacity. Under ISED’s leadership as Chair in 2023, the Forum was reinvigorated and is now pressing on to addressing excess capacity, and building the coalition of like-minded partners.

• Canadian steel and aluminum firms are at the forefront of efforts to reach Canada’s net-zero 2050 goals.

• Excess capacity and production of high-carbon metal in other jurisdictions, such as China, undermines Canada’s decarbonisation efforts, which are of critical importance given that steel and aluminum represent ten percent of global emissions.

• Canadian investments in high-cost technology to support low-carbon metal production are challenged to compete with cheap, carbon-intensive production subsidized by non-market economies.