Thank you, Mr. Chair.
Thank you for this opportunity, as part of these pre-budget consultations, to talk to you about the situation in which the primary aluminum production industry in Canada finds itself. I will also be talking to you about the measures we invite you to take in order to promote our industry's competitiveness in a market that is, as you will see, ever more competitive.
With the exceptions of a few blips, our industry has been experiencing historically low prices for ten years now. Yet our costs are steadily increasing and our business environment is deteriorating because of the geopolitical risk, right here in America, from trade conflicts and tariff wars, which destabilize our traditional markets.
Meanwhile, our plants are aging and require new investments in order to reach the level needed to meet the challenges of the next 25 years and to remain at the head of the pack in an industrial world based on 4G, meaning advanced production using big data, robotics and automation. We therefore see the need for major, not to say massive, investment.
Let us be clear, however. This is not a matter of expansion phases or major projects requiring capital investment. It is a matter of once more modernizing the existing capacity in order to meet the challenges of the next 25 years.
The 2018 reform of the American tax system considerably changed the investment climate in the United States. In addition, some automotive plants moved to Mexico to take advantage of the access to cheaper metal. This sometimes became illegitimate because of the measures taken by one or both of the other signatories of the CUSMA.
Despite the renewed free-trade accord, which we continue to support, our business environment remains very unstable. It is also subject to political decisions made elsewhere, decisions that considerably affect the dynamics of the market for our goods.
I cannot emphasize strongly enough that, while we get the same price for our metal today as we did 30 years ago, we pay 2020 costs. Our profit margins are therefore 44% lower than they were 30 years ago.
Our industry also has to face increasing competition from sovereign capacity, almost 70% of the world's capacity. This is held by states or sovereign funds in countries like China, the United Arab Emirates, or India, which is technologically advanced and very competitive, even in the American market. You can see this in the figures we have included in the presentation to help with the understanding.
Chinese production is heavily subsidized, as demonstrated in a report by the OECD, the Organization for Economic Cooperation and Development. The report came out in January 2019 and contains a study on the aluminum market. The production continues to have a detrimental effect on our markets because of the export of processed products that are highly subsidized. One Chinese company alone, SPIC, has received $35 billion (US) in subsidies from the government of China.
Our industry has invested billions of dollars in plant modernization over the last 20 years, which has enabled us to increase our capacity and reduce our emissions of greenhouse gases, or GHG. We have doubled our capacity and reduced our GHG emissions by 34% in absolute terms. That is by far the greatest contribution to reduced greenhouse gas emissions in Canada's history.
Our industry must now move to 4G production, with automation, robotics and big data. That move must accelerate over time in order to maintain the global competitiveness of our plants. This at a time when our competitors enjoy a business environment that is highly supported by sovereign funds and permissive regulation, which adds capacity at a greatly reduced cost.
Against that background, we submit to you the following recommendations.
First, in order to improve our competitiveness, and in conjunction with the provinces of Quebec and British Columbia, the tax measure known as the accelerated capital cost allowance on capital expenses must be updated, in order to redress the unfair treatment and allow the aluminum industry to take advantage of it. Unlike the steel industry, our sector has no access to category 53, which was established in the budget statement of 2018.
The parameters of the Strategic Innovation Fund (SIF) program must be reviewed in order to address the need to modernize our plants and maintain our competitiveness in the future. The administrative burden in navigating existing incentive programs must be eliminated in order to lighten the load of processing files and reduce delays in payment or reimbursement.
With the goal of maintaining and protecting our access to the CUSMA market, government purchasing, in government-funded projects, must attach value to low carbon-footprint solutions using materials produced right here in Canada. That goes not only for aluminum, but also for other materials. The government was quick to fly the flag by indicating that it was going to finance major infrastructure projects from coast to coast in Canada. I repeat that, for infrastructure projects to be green, we should above all use low carbon-footprint materials produced here in Canada.
There is also a need to modernize the services supporting the Canada Border Services Agency’s oversight mechanism for imports. We congratulate the government for establishing, as of last September 1, an oversight system for aluminum imports similar to the one for steel. The computer systems and the supporting infrastructure need investment in order to operate with the new parameters that have been established. Investments must be made in order to strengthen the system.
We must also make sure that Mexico implements a domestic oversight system for aluminum imports that is as robust as the one we have in Canada. Together with the governments of the United States and Mexico, we must establish a process to harmonize the mechanisms that monitor aluminum shipments in CUSMA territory. In order for the three signatories to reach an agreement on a designated trading area, we have to give ourselves the means to jointly define the metal shipments that we want to monitor, using the same parameters.
Finally, we have to implement tracking systems for metal in Canada. Seeing what comes in is one thing, but following what we produce to make sure that it is what actually goes out, is something else. So that step must be added to the process.