With regard to the current status of the coatings industry in Canada, CPCA is conducting a comprehensive economic impact study of this national industry in concert with Orr & Boss. It is the first of its kind in Canada. This study will confirm some of the trends CPCA has been tracking for its members and how those trends might shape the future of the industry. Since the introduction of NAFTA, which is currently being renegotiated by the U.S., Canada and Mexico, the volume of paint and coatings sold has steadily increased in a slow but stable fashion. This has occurred despite or because of consolidation depending on one’s perspective.
In 2008, the volume of paint and coatings imported from the United States was roughly 40 percent. Over the past 10 years that number has grown to more than 50 percent. At the same time, some manufacturing facilities of major multinational companies shut down in Canada with that capacity absorbed by their existing facilities in bordering states. Some would argue that in those cases proximity exacerbated this situation given that shipping time to Canada from the United States is relatively short and cost-effective, otherwise the trend would have subsided. So what triggered such a significant shift in production? The answer is not immediately obvious, but there are many clues.
Many allude to increasing regulations as a primary reason for the shift in production given that regulations are generally not as severe in the U.S. And, regardless of one’s view of the political situation, regulatory impediments to business will likely lessen in the months and years ahead under the Trump administration. In Canada, however, the coatings industry continues to be among the most heavily regulated sectors by all levels of government and this has not diminished. In fact, one could easily argue that it has ramped up in recent years with the Chemicals Management Plan at the federal level assessing all chemicals in commerce for the past 10 years and another five years to come, and very likely more on the horizon as government has already indicated there will be another phase post-2020. Over the last decade 2,300 substances were vigorously assessed by government, with more than 80 risk management measures taken including regulations, to address health and environmental concerns. Such a volume of chemical assessment is more than any other country has done to date or plans to do in such a short time frame.
The Canadian government regularly updates or amends ongoing regulations for health and safety. These include current amendments to the Canadian Hazardous Products Regulations, the Transportation of Dangerous Goods Regulations and the current thrust at the federal level to amend the Canadian Environmental Protection Act as it relates to chemicals management. All have impacts on business. All usually mean added time pressures and costs for business in Canada. Provincially, there are challenges that drive costs and these too are generally related to health, safety and the environment.
Industry does not deny the need for adequate protections related to these three most important areas of business, but often the regulatory red tape has little or no positive impact on worker or consumer safety. The growing level of bureaucracy takes on a life of its own, requiring companies to clear regulatory hurdles for licensing and permitting processes and a host of other measures that must be complied with to sustain and grow their business. More often than not this slows down business, which in turn slows down job creation, which in turn reduces the level of both corporate and personal taxation. It is a negative spiral that often serves no one’s interests but the regulatory body involved.
In recent years we have seen this in spades in Ontario where public policy, which some would argue has been bad public policy, has driven up the cost of doing business. These include increasing hydro costs, new carbon pricing taxes, growing stewardship fees increasing product prices and other environmental fees related to plant operations and waste handling. All have served to increase the cost of doing business leading to more than 300,000 jobs disappearing in the last decade. Is it any wonder the Ontario government has now embarked on a Red Tape Reduction Challenge for six sectors, including the chemical sector, to help put the out-of-control regulatory genie back in the bottle? Industry will do what it can to ensure this is not another consultation exercise for the sake of consultation with no discernible reduction in regulation.
Generally, industry understands the ways in which these issues negatively impact business. These challenges go above and beyond the norm and prevent many from meeting business targets. The profit and loss statement is ruthless in that regard.
A case in point relates to the expansion plans of a good-sized Canadian SME with more than 150 employees selling product in Canada, the United States, Europe and China. The company experienced the full wrath of the regulatory beast when considering an investment in new plant and facilities to support and sustain its growth. The $4 million budgeted for expansion was immediately shelved as it became clear the approval process would take up to one year and very likely longer. The fact that three U.S. states were dangling incentives that were very hard to ignore, such as tax incentives and “free” land to build new facilities, has only further exacerbated the decision. Of course, it would only be a matter of months, not years, to be up and running. Time is money after all.
The founders and current operators of the company want to remain in Canada, even expanding the business here. But they must prepare for the reality of a globalized economy and the competition it brings. Fortunately, the government is now reconsidering what it might do to help facilitate their expansion plans in light of the unfortunate circumstances created by these regulations. Let’s hope the story has a happy ending. Otherwise, this and many more companies like it face a tougher future in Canada.