Trade

• The Importance of Rules-Based Commerce
• Working Together in North America
• Key Statistics

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 beyond their borders. Although relatively heavy and costly to transport, steel and steel products often travel across oceans to find a customer.

In principle, this trade is positive for both steel producers and steel users: matching the various types of steel with those who would put it to use across a range of product applications increases value throughout the supply-chain for many industries.

Over one-third of global steel production is traded internationally, and in Canada, over half of the steel consumed domestically is imported. On balance, Canada is a net importer of steel.

However, 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. The problem is often rooted not with individual companies, but rather with governments striving to develop a steel industry to serve both internal needs and also export to open markets elsewhere.

Unfortunately, it is often the case that imports into Canada are not based purely on market forces. Rather, subsidies and other trade distortions directly undermine the ability of Canadian firms to compete.

As the most significant regional importer of steel, the NAFTA bloc (Canada, the United States, and Mexico) is particularly vulnerable to trade-related market distortions. Markets in North America are the most open in the world, with many international companies marketing steel into the region.

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 company. 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 World Trade Organization (WTO).

Trade distortions make it necessary for individual companies and countries to enforce fair trade through the use of trade laws and trade remedies. In Canada, these matters are adjudicated 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 improved 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 at the forefront of the integration of the North American economy. Starting with the initial Canada-United States Free Trade Agreement in 1988, and followed by the North American Free Trade Agreement (NAFTA) in 1993, Canada’s steel industry has played a significant role in the evolution of North American free trade.

NAFTA steel markets are essentially integrated: 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. 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 have 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 has developed a North American Steel Strategy to guide the work of both governments and industry in the months and years ahead. The Strategy focuses on three key areas:

1. External Trade
2. Internal (Intra-NAFTA) Trade
3. Industry Productivity and Competitiveness

Through the common steel strategy, the NAFTA steel sector supports the broader Security and Prosperity Partnership (SPP).

Internationally, the CSPA is cooperating with other steel-producing nations towards agreements to eliminate or greatly reduce market-distorting subsidies. Working with the federal government, the CSPA is actively working to address these problems in the World Trade Organization (WTO) and in the Steel Committee of the Organization for Economic Cooperation and Development (OECD).

Canadian Steel Statistics (2008)

Production: 14.9 mt
Sales: $14 billion
Apparent Domestic Consumption (ADC): 14.7 mt
Imports: 7.6 mt
Exports: $7 billion

For more information, visit Statistics Canada or the NAFTA Steel Trade Monitor.