Workers continue vehicle assembly at the Honda of Canada Manufacturing Plant 2 in Alliston, Ont., on April 25, where it was announced that Japanese automaker Honda will make the largest automotive investment in Canada's history, worth $15-billion.PETER POWER/Getty Images
The federal and Ontario governments are facing new complaints that they are not doing enough to ensure that Canadians financially benefit from a wave of subsidized battery factories and other projects to build an electric-vehicle supply chain.
The latest warning comes from the domestic steel sector, particularly steel fabricators, who shape the metal into construction-ready products. They say that they’re struggling to compete for contracts to supply the projects, because overseas rivals – especially from China – offer much lower prices because of looser labour, environmental and other standards.
The concerns were expressed in letters sent this spring to both levels of government by steel fabricator Burnco Manufacturing Inc., a petition launched by the Canadian Institute of Steel Construction, and interviews with sectoral representatives.
They’re being voiced urgently because Volkswagen Group is nearing procurement decisions for its EV battery factory in St. Thomas, Ont., while Umicore SA is in that process for a battery-materials factory near Kingston, meaning fabricated steel contracts totalling hundreds of millions of dollars are in play.
“If we’re going to give out money … let’s use more of our Canadian contractors to design and build these places, and use local content,” said Gord Rados, executive director of the Ontario Structural Steel Fabricators Association.
Mr. Rados and other sectoral representatives are calling for “Buy Canadian” requirements to be inserted into the subsidy deals, which involve up to nearly $15-billion in combined federal and provincial backing for Volkswagen, and approximately $1-billion for Umicore.
Asked about the concerns, Audrey Champoux, a spokesperson for Industry Minister François-Philippe Champagne, said that the subsidy agreements – which have not been made public – include commitments to “partnerships with Canadian suppliers.”
However, the belief within Canadian industry is that the provisions lack teeth. The calls to strengthen them have been greeted warily by government, in part because of concerns about violating international trade law, as well as general reluctance to reopen deals that Canada fought hard to land.
Nevertheless, the outcry – which follows another controversy involving the use of foreign workers in the construction of battery plants – is indicative of mounting demands from industry for economic protectionism as part of Canada’s strategy for the global energy transition.
The pressure is also coming from the United States, which has been much more aggressive than Canada in pairing public subsidies for domestic industry with measures restricting foreign competition, especially from China. That has recently been highlighted by the introduction of a 100-per-cent tariff on imports of Chinese-made EVs, which Ottawa is considering matching.
Barry Zekelman, a Canadian billionaire whose Zekelman Industries makes steel pipes and tubes (which fabricators then turn into building products) across North America, said that Canada has been hurt by taking an “all carrot and no stick” approach to its subsidies, in contrast with the United States.
Even the U.S. has not, from available evidence, attached “Buy American” requirements to subsidized EV battery plants, of the sort that Canadian industry is seeking. However, unlike Canada, it has done so with other energy and infrastructure projects that it is funding, and it is more aggressive about using trade policy to block imports.
That has Canadian manufacturers sounding alarms about being left behind, with the roughly $15-billion domestic steel industry – from processors of raw materials, through pipe and tube makers, to fabricators – feeling particularly vulnerable.
The sector has been hurt by a doubling of offshore steel imports over the past decade to now account for nearly 40 per cent of all steel used in Canada, according to the Canadian Steel Producers Association (CSPA), in part because of China dumping oversupplied state-subsidized steel. While Canada has a trade-remedy system to address dumping complaints, it’s perceived by industry to be inadequate.
For Canadian steel fabricators pushing to supply the budding EV battery sector – mostly Canam Steel Corporation, Walters Group and Burnco – the challenges aren’t solely from overseas competitors. The contract for the first of Canada’s battery plants, being built by Stellantis NV and LG Energy Solution in Windsor, Ont., went to a U.S. company.
But one of the Burnco letters to government lists a range of other recent publicly funded projects that went to Chinese suppliers, such as the Woodfibre LNG project in British Columbia, and a Dow Chemical Inc. plant in Alberta. It also points out contracts going to other low-cost countries, including the United Arab Emirates.
It’s not a foregone conclusion that the battery supply chain procurements will go the same route. A spokesperson for Volkswagen said the company is committed to local sourcing whenever possible and reasonable, and takes factors such as sustainability into consideration, while saying it’s too early to comment on specifics around purchases for the St. Thomas plant. Umicore did not reply to a request for comment.
But the tone of the recent communications suggests that the Canadian companies believe the tide is against them, which could also affect their prospects of supplying Honda Motor Co.’s $15-billion Canadian EV plans – the biggest procurement on the horizon.
Realistically, Canadian companies might not be able to fully supply all such projects regardless of overseas pricing advantages, because they don’t make every type of steel product used in construction. Industry advocates acknowledge that protectionist provisions in subsidy deals might have to be Buy North American, rather than Buy Canadian.
Other mechanisms altogether might have a better chance of finding traction with Canadian governments typically more concerned than the U.S. with trade-law compliance, let alone inclined to go beyond what the Americans are doing.
While agreeing that Canadian steel companies need help, Aaron Cosbey – an expert on the intersection of trade and energy policy with the International Institute for Sustainable Development – said Canada could start by following the U.S. lead and insisting on domestic steel for government infrastructure projects. He also suggested that Ottawa could pursue carbon border adjustments, a form of tariff on emissions-intensive imports, or seek inclusion in a pact to apply those sorts of tariffs on steel and aluminum that the U.S. and Europe are jointly pursuing.
There is some acknowledgment within the industry that there is no silver bullet. “I don’t think there’s a one-size-fits-all solution,” said CSPA trade and industry affairs director François Desmarais, suggesting “several layers of protection” are needed.
Those layers may take shape gradually in the coming years, as Canada wrestles with its place in emergent trade wars.
But the argument from Canadian companies, seeking to capitalize on the growth of the EV battery sector specifically, is that time is of the essence to capitalize on a current wave of construction in which automakers are putting down roots.
“Six years from now I don’t see as many of these plants being built,” Mr. Rados said. “We need to quickly develop a strategy now.”