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Business Commentary Liberal stimulus plan a chance to reinvigorate Canadian steel industry

Bill Missen is former senior vice-president at Stelco Canada.

Even before it is formally installed, the newly elected Liberal government faces the pressure of high expectations – especially when it comes to infrastructure spending. It's a platform promise with the potential to provide much-needed economic stimulus by doubling the public works budget to $125-billion over the next decade.

By implementing this spending plan, the new government has an exceptional opportunity to extend a lifeline to Canada's struggling steel industry. But it is an opportunity that could easily be squandered.

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Before the first dime of public money is spent, a strong made-in-Canada supply policy needs to be firmly in place. Without that, new jobs will not be created and existing ones will not be preserved. That policy needs to be paired with a review of a domestic playing field that leaves many Canadian companies at a disadvantage to cheap, subsidized imports.

At the same time, the government needs to reinvigorate the federal steel caucus, including MPs from all ridings where steel is manufactured.

It should also introduce a mechanism that adjusts import levels based on domestic capacity utilization. When Canadian steel production falls below a certain threshold, companies would be stabilized by the trigger of variable duties.

Canada's domestic steel producers are being forced to compete with low-cost imports from countries that do not have the same fixed costs and are often directly subsidized by their governments. Meanwhile, Canadian companies pay taxes to support broad social programs, as well as the costs of compliance with environmental standards, employee salaries and benefits, and health and safety practices.

Over the past year, international steel prices have fallen to levels not seen since the industry collapsed in 2001. At that time, 40 North American steel producers declared bankruptcy, production capacity fell by almost half and the number employed fell by 400,000. That led directly to the U.S. government increasing tariffs on imported steel, allowing the sector to stabilize.

That same scenario is being played out in Canada today. But it's not the first time that cheap imports have gutted the industry. In 2000, Stelco – now U.S. Steel Canada – was brought to the brink of collapse when cheap imports gained a 44-per-cent share of the market. The result? The company's net income fell by 96 per cent in one year.

The company is once again struggling to survive. Not only are commodity markets tough, but it also faces the loss of lucrative contracts, financial claims of $2.2-billion from its former parent, U.S. Steel, as well as billions of dollars worth of unfunded pension and benefit liabilities for workers and retirees.

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Neither is it alone.

Essar Steel Algoma has already announced layoffs and has reportedly retained advisers with a view to a possible financial restructuring. It is also struggling with a disruption in its critical supply of iron ore from Cliffs Natural Resources, the subject of a bitter cross-border lawsuit.

These and other fragile Canadian steel companies cannot afford the steep cost of launching challenges through the slow and cumbersome trade dispute resolution process. Important redress legislation has stalled, even as the debate about further expanding trade under the new Trans-Pacific Partnership has gained momentum.

Furthermore, every dollar that is diverted to building a legal case and wrangling red tape is a dollar not invested in new equipment, product development and job creation.

The Canadian voters who are about to pay for a new national infrastructure program have to determine what their priorities are. If they do not want their tax dollars to be spent on further eroding an already hobbled industry, they must speak up now and make sure their new government hears them.

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