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Changes in the structure of the Canadian economy are putting great pressures on Steelworkers in all sectors. Canada has been drawn more and more into the global economy. Over the last 10 years exports of Canadian goods and services have more than doubled, and imports have followed the same pattern. As a result more and more Steelworkers are directly or indirectly exposed to the pressures of international competition: the race to the bottom. That race to the bottom includes rounds of tax cuts by government. Those tax cuts affect all of us through their impact on social programs and infrastructure. In the public sector, it has meant hard bargaining, a struggle to maintain services and increased job insecurity.

Our economic security is under attack. We are faced with a crisis in the manufacturing sector – a crisis that is especially severe in the steel industry. We are facing a crisis in pensions and benefits, as employers focus on those areas in their attack on costs and living standards. The on-going assault on the public sector has meant that a source of good, unionized jobs for women is threatened. These crises make the on-going struggles of women, people of colour, and groups traditionally disadvantaged for economic security and equality more difficult.

Steelworkers are fighting back every day in the workplace, at the bargaining table and in the legislature. We need to focus our efforts. We need to adopt concrete actions and goals, both at the bargaining table and in the political arena, which will address the areas of critical need immediately.

This paper will review some of the economic and bargaining table issues facing our members, and conclude with a series of recommendations for the union designed to strengthen our economic security.

Governments have many important roles to play in the Canadian economy. We most often think of them providing public services like roads, health care and education. These services are important to us, and they contribute to what we value about Canadian and Quebec society.

The government also has an important role to play in supporting the private sector. Those same roads get manufactured goods and products to market. The public education system trains the future workforce. And, our health care system makes doing business in Canada less expensive than in the US.

The government needs to take a more active role in supporting the manufacturing sector. To keep it healthy, our physical and social infrastructure needs to be maintained. We need an exchange rate policy that makes sense. But, more than that, we need the government to take direct action to support the Canadian manufacturing sector.

The manufacturing sector is important to the Canadian economy. We hear a lot about the "new economy" and the service sector. But, manufacturing continues to create a great deal of the wealth of this country. That wealth contributes to the maintenance of our public services, as well as to the future of workers in those industries.

It provides jobs to more than 2 million Canadians.

Chart I: Manufacturing Employment 1989-2003

It accounts for almost a fifth of the Canadian economy.

Chart II: Manufacturing Industry as a % of GDP

And, it provides well-paying jobs. In 2003, wages in manufacturing were 15 per cent higher than the average.

Chart III: Average Hourly Earnings by Industry

• In 2003, manufacturing shipments dropped by 1 per cent to $513.2 billion, following a gain of 1.9 per cent in 2002. Unfilled orders were just $36.7 billion in December, down 18 per cent from December 2002, the lowest level in over six years.

• Between December 2002 and December 2003, we lost 55,000 manufacturing jobs.

• In 2003, when total employment increased overall by 2.2 per cent over the previous year, employment in manufacturing dropped by 1.4 per cent.

• The dollar rose by 19 per cent from December 2002 to December 2003. The last time the dollar rose so quickly, it devastated the manufacturing sector. Between 1989 and 1992, we lost 300,000 jobs, or about one in every seven manufacturing jobs. 7,000 plants shut down completely. It took 10 years to get back to the manufacturing job level of 1989.

• The falling dollar played a big role in the recovery of the manufacturing sector between 1993 and 2003. The value of the Canadian dollar steadily fell from an average of 87.3 cents US in 1991 to an average of 63.7 cents US in 2002.

As a union, we are very concerned about the impact of the high value of the dollar on the manufacturing sector.

We need governments to take action on a number of fronts. Liberal and Conservative governments act like their only role is to get government out of the way of the private sector. Their policy approach is to lower taxes, privatize and contract out public services and weaken protection for workers, the environment and consumers.

That right-wing neo-liberal experiment has gone on long enough. The time has come for governments to take positive action to support the manufacturing sector.

Often, when we look for this support, we are told that trade agreements make it impossible. What is really happening is that governments are using trade agreements as an excuse for their inaction.

That is what happened in the steel industry.

Our steel industry is in crisis. Together with management, we looked to government for action. The Liberals used a flawed process and stacked committee at the Canadian International Trade Tribunal. Then, the Liberals stalled on implementing the Tribunal’s ruling. They kept on stalling until the World Trade Organization (WTO) produced an unfavourable ruling on the US trade actions to protect its steel industry. After that ruling, the Liberal government said it would not be taking any action on the Tribunal’s recommendations.

We believe that the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) are deeply flawed in their approach to international trade. Their purpose is not to help trade. Their purpose is to provide a constitution for financial capital. We have worked hard with our social partners to oppose the Free Trade Area of the Americas (FTAA) and the expansion of the WTO. And, we will continue to work toward fair trade regimes that contribute to an international policy environment designed to serve the collective interests of people rather than the individual interests of owners and capital. A fair trading environment, which protects labour rights, environmental and social standards, is more important than protecting the rights of capital.

While we oppose the current trading regimes, we do not accept that they are an excuse for government inaction. Even within the confines of these agreements, there is room for an industrial policy to be implemented.

There is no limitation on providing public infrastructure under any trade agreements. Years of government cuts to taxes and program spending mean that we have a crumbling physical and social infrastructure. Our transportation systems, water systems, and education systems need investment. The 2004 Federal Alternative Budget proposes the investment of $5 billion per year for the next three years into infrastructure to start the rebuilding process. These systems provide important support to the private sector.

It is clear under both NAFTA and WTO agreements that direct support to industries is allowed. And these agreements do not prevent governments from setting conditions on this support to make sure the money is well spent. Canadian governments can still attach legally enforceable conditions to ensure public subsidies result in demonstrable employment, industrial and other benefits to Canadians.

Support for industry could result in trade actions from other governments against Canada. But the potential for trade action should not prevent our governments from acting in the national interest. If subsidies are generally available, any countervailing action will be less likely to succeed. And, any successful action from another country would have to prove that industry in that country was injured, and that the cause of that injury was Canadian actions.

Different sectors of the manufacturing industry are facing diverse circumstances. Some of them will not need any assistance from governments. Others, like the steel industry, are in crisis and need assistance.

There is no excuse for inaction.

The most basic indicator of our economic well-being is our wages. We know that being unionized increases our wages. And, for women, being unionized both increases our wages and narrows the gap between men’s and women’s wages.

Chart IV: Average Hourly Earnings 2001

Major collective bargaining settlements in 2003 resulted in wage gains that averaged 2.6 per cent per year, down from the 2.8 per cent average in 2002.

Wage gains in the public sector were below those in the private sector throughout the 1990s. Since 2000, private sector increases have been lower than those in the public sector. Wage increases in the private sector averaged 1.5 per cent in 2003, compared to 2.6 per cent in 2002. Wage increases in the public sector averaged 2.9 per cent in 2003, unchanged from the previous year.

In primary industries the average wage increase was 2.7 per cent, in manufacturing 2.4 per cent and in education, health and social services it was 3.4 per cent.

The need for Steelworkers to negotiate provisions to help workers balance work and family responsibilities is as important today as it was in 1989 when the union first adopted guidelines on bargaining family responsibilities. A revised and updated version of the Balancing Act: A Steelworker Guide to Negotiating the Balance of Work-Life Responsibilities will help us to address our members’ needs for contract provisions on child care, elder care, dependent care, family responsibilities and parental leave.

Over the last decade we have seen a decline in the participation in registered pension plans in Canada. A recently released survey ("Pension Plans in Canada") found that in 2001, 5.5 million workers, or 40 per cent of all employees, belong to a registered pension plan. In 1991, 45 per cent of all workers belonged to a pension plan. Over the last decade coverage among men fell by eight per cent to 41 per cent, and coverage among women fell two per cent to 39 per cent.

In the private sector, one in three workers belongs to a pension plan. If you work in a large plant you are more likely to have pension plan than if you work in a small plant, and men are more likely (66 per cent) to have a pension than women (34 per cent).

About 66 per cent of all pension plan members in the private sector work for firms with 1,000 or more employees. The main reason is because unions have successfully bargained pensions in large industrial workplaces. In smaller workplaces, however, pension plans are rare.

The current economic climate has provided employers with another opportunity to try to eliminate registered pension plans. When stock markets were riding high, employers were telling us to get rid of our defined benefit pension plans because we would do better playing the market. Now, they are telling us we have to get rid of our defined benefit plans because they are costing too much.

The part of the story that hasn’t changed is that employers want to get rid of our defined benefit pension plans.

There are two basic types of pension plans: defined benefit and defined contribution.

In a defined benefit plan, everyone knows exactly how much the pension benefits are, but no one knows for sure how much the pension will cost. The union negotiates what benefits will be paid out of the pension plan and the employer makes a promise to pay that amount at retirement.

In a defined contribution plan, everyone knows exactly how much money will be put into the pension today, but no one knows what amount of pension will come out of the plan at retirement. The union negotiates the contributions the employer makes to the pension plan but the ultimate pension that can be provided will be whatever can be purchased with the money in the individual''s account at retirement.

One of the big differences between defined benefit and defined contribution plans is how the money in the fund can be used. In a defined benefit plan, the money is pooled together in one large fund. The pooling of funds allows the union to negotiate special benefits such as early retirement, survivor pensions and disability pensions. A defined contribution plan cannot provide any of these special features.

Another major difference between a defined benefit plan and a defined contribution plan is investment risk. In a defined benefit plan, the employer takes the investment risk. If the pension plan earns negative returns the employer must contribute more money. In a defined contribution plan, each individual employee takes the investment risk. The employer’s only obligation is to contribute a fixed amount of money to the individual’s account.

There have been a lot of stories in the news about underfunded pension plans. A study by Mercer’s, Towers Perrin and Watson Wyatt talked about a $225 billion shortfall. A study in the Globe and Mail talked about an $18 billion shortfall. The Office of the Superintendent of Financial Institutions says that it is putting 60 out of 370 defined benefit pension plans on its "watch list."

Chart V Pension Fund Returns

Those sound like big numbers, and a lot of bad news. But, it is important to look behind those headlines and numbers to see what all this means.

Investment losses over the last several years and declining interest rates have created significant difficulties for defined benefit pension plans.

Since 1987, the average pension fund returns have followed stock market performance consistently, with the exception of 1999. Pension fund returns vary from market returns because their assets are mixed between stocks and bonds. Pension fund assets are also invested more conservatively. Therefore they do not generally hit the highs and lows of the market. The most important thing to take away from the chart is that pension fund returns and stock market returns are once again in the positive.

There has also been a significant decrease in solvency interest rates. Solvency interest rates have declined by more than four per cent since July of 1994. Generally, a one per cent decrease in interest rate increases plan liabilities by 15 – 20 per cent.

Chart VI:  Solvency Rates

Declining stock markets have significantly reduced pension fund assets. Lower interest rates have significantly increased pension plan liabilities. The combination of these two trends has resulted in increased unfunded liabilities and increased solvency deficiencies.

Most companies have seen an increase in their pension costs before they even get to the bargaining table. Many employers are using the increased costs of their defined benefit plan to argue that it’s time to convert to a defined contribution plan.

There is no reason to panic because of two years of bad stock market returns. We negotiate and improve our pension plans over the long-term. Similarly, pensions are funded over a long period of time. Your employer is making contributions now for your pension that might not be paid out for another 20 years. Over the long term, stock markets have always recovered to normal rates of return.

Pension plans go in and out of surplus. If your employer continues to operate, your plan isn’t at risk, it is just more expensive.

There is no doubt the stock market slide has increased the cost of maintaining our pension plans. Pension improvements will be more expensive and harder to negotiate. That isn’t good news, but it isn’t a crisis either.

Pension debt is not like other debt for several reasons.

• Full repayment of solvency liabilities is only triggered when the pension plan is terminated. Your employer’s other debts have definitive payout dates.

• The amount of pension-related debt fluctuates with changes in interest rates and changes in many actuarial assumptions. In other words the amount of debt is not fixed and controllable. The amount of debt changes with each actuarial valuation.

If your employer cannot generate enough revenues to cover its operating costs, it will run into cash flow problems. Increased pension costs may create cash flow problems but that is not a pension problem. The pension plan is only one of many costs in a company’s total operating costs. Eliminating the pension plan will not eliminate the company’s cash flow problems.

Employers are telling bargaining committees and staff that benefit costs are soaring and may be unsustainable in the future. All too often, we find ourselves fighting against the employers’ requests for reduced benefits, higher co-insurance and/or deductibles, and elimination of coverage for family members or particular benefits.

As with publicly funded health care in Canada, benefit plan sponsors are all too quick to lay the blame of increased health care at the hands of the very people it is designed to protect. Employers are responding in a variety of ways: passing the costs on to our members; introducing flex-benefits under the guise of giving our members more control over their benefits; and proposing managed drug formularies with tiered drug benefits programs.

In Canada, more than 17 million people are covered by various private health and insurance plans, with another 10 million senior and low income Canadians depending on government drug benefit programs for prescription drugs.

Prescription drugs are the fastest rising health care expense. In 2000, 61 per cent of all drugs sold were protected by patent legislation, up from the 45 per cent in 1996. According to ESI Canada, a drug benefit management company, private health expenditures rose to $32.9 billion in 2002. At 16.2 per cent of all health expenditures in Canada, drug costs are the second highest expense after hospitals. Canadians now spend more on prescription drugs than on salaries for the physicians treating us.

It is estimated that Canadians will face a $30 billion bill for drug costs by 2010. Since 1950, drug costs have risen by 200-300 per cent every decade.

Benefit coverage is no longer a fringe benefit. It represents a significant part of your wage package. Bargaining benefits will require an increasing amount of effort if we want to improve or even maintain what we have in our collective agreements.

One of the most viable alternatives to providing benefits has been the Steelworkers Trusteed Benefit Plan, which is a multi-employer, union trusteed, non-profit benefit plan. The benefit plan has been in existence since October 1, 1994, and covers more than 13,000 local union members, staff and retirees from a wide range of workplaces across Canada.

The plan offers a range of benefits, including life and accidental death and dismemberment insurance, a prescription drug card, dental benefits, vision care, weekly indemnity coverage, long-term disability protection, an employee assistance plan, extended health care, and out of country coverage. Each plan is customized to the needs of the individual local or unit. Recently, the plan has begun to provide retiree benefits.

While the plan has grown to represent one out of every 10 members in Canada, many of our members still do not know about the plan. It has been on the leading edge of providing alternative health care benefits.

The benefit plan has been valuable in organizing new and existing members, and has the potential to reach even more of our members, retirees and their families.

Where the benefit plan is proposed, our bargaining committees must have as much information available as possible to ensure success. The appropriate resources must be dedicated within the union to ensure that we are responding in the best interests of our members.

As a union members’ benefit plan, the Steelworkers Trusteed Benefit Plan has responded to a variety of new opportunities that have arisen over time. The dental offices, the retiree benefit plan and the new strike assistance plan are all clear examples of progressive actions. Our members continue to face many different issues and the benefit plan can continue to provide new and needed services to our members.

The United Steelworkers is responding to the economic challenges facing our members.

The following recommendations will help guide our union’s actions in the workplace, at the bargaining table and through political action.

1. Government support for our manufacturing industry

• Our union will lobby federal and provincial governments to recognize the essential role played by manufacturing industries in our economy, and to implement policies which will reverse the decline in our manufacturing industries.

2. International trade agreements that respect workers’ rights

• Our union will continue to work with our allies and partners in Canada and internationally to make changes to international trade agreements.

3. Establishment of a National Steel Strategy Committee

Given the current crisis in the steel industry, this policy conference endorses the establishment of a National Steel Strategy Committee made up of representatives from our union, the federal and provincial governments, and employers. The committee will have the following tasks:

•  Provide an analysis of the current state of the industry including:

  • Linkages to other sectors;

  • Impact of international competition, the high value of the dollar and financial market returns;

  • Investment needs; and

  • Skill training and employment needs (in conjunction with the Sector Study undertaken by the Canadian Steel Trade and Employment Congress).

k Based on this analysis, the committee will develop a package of policy initiatives which will provide immediate support to the industry. Supportive initiatives will be carefully designed to ensure their compliance with international trade agreements.

 Measures will include:

• Adjustment assistance for closures, downsizing or bankruptcies;

• Training of skilled trades to replace retiring workers and other training needs that are identified;

• Measures to address the temporary impact of financial returns on funded ratios and solvency requirements of steel industry pension plans;

• Measures to assist in making the necessary capital investments in the industry to move up to higher value-added products and processes, with performance measures that will ensure that employment environmental and other targets are met; and

• Other measures that may be identified.

k On an on-going basis, throughout the work of the National Steel Strategy Committee, we need to continually press governments and employers for the actual implementation of good policy. The committee needs to take concrete action.

4. Reform legislation governing bankruptcy and corporate restructuring

This policy conference proposes action to reform legislation governing bankruptcy and corporate restructuring to protect workers:

•  Pensions need to be better protected. Mechanisms need to be put in place that will ensure workers and retirees have the ability to recover funds to pay off unfunded pension liabilities prior to other creditors.

• Legislation governing bankruptcy and insolvency must be clarified to ensure that collective agreements can not be suspended, in whole or in part, or opened and gutted by courts acting at the behest of bankers or owners.

5. Wages

The Steelworkers National Policy Conference supports the following objectives for bargaining wages. Steelworkers will:

• Continue to bargain fair and equitable wages;

• Resist any proposals for two-tier wage rates;

• Continue to focus in the public sector on bargaining SES, the Steelworkers Pay Equity and Job Evaluation system.

Steelworkers advocate and support bargaining objectives to help members balance work-life responsibilities. Steelworkers will:

• Use the revised and updated Balancing Act to negotiate provisions on work and family responsibilities in our collective agreements.

6. Protecting our pensions

Because defined benefit pension plans are superior to all other forms of pension plans, and provide the greatest opportunity for a secure, stable and adequate standard of living after retirement, this policy conference proposes the following principles to guide our pension bargaining:

• Our union will reject all employer proposals to eliminate existing defined benefit pension plans;

• Where negotiating a new defined benefit plan is not a realistic prospect, the union’s objective will be to negotiate membership in the Steelworkers Members’ Pension Benefit Plan, and negotiate contributions to that Plan of a minimum of five per cent of wages;

• During restructuring, a primary objective will be to protect the pensions of retirees and the accrued benefits of active members.

• Our union will negotiate greater participation in the direction of our defined benefit pension funds and greater influence over pension investment decisions. Our objective will be to negotiate the right for the union to nominate union representatives to the pension boards and/or to the pension investment committees which address issues of pension funding, determine pension investment strategy and select investment managers.

7. Group insurance benefits

One of our union ’s long-standing bargaining objectives has been to negotiate strong benefit packages. That will continue. This policy conference proposes the following principles to guide our benefits bargaining:

• Our union will resist the so-called "flex benefit" approach to reduce and/or control costs of group insurace.

• Our union will promote participation in the Steelworkers Trusteed Benefit Plan. In particular, if an employer demands benefit concessions or flex benefits, or if a unit is negotiating benefits for the first time, the advantages of the Steelworkers’ Trusteed Benefit Plan will be reviewed.

• Our union will promote the retiree benefit program provided by the Steelworkers Trusteed Benefit Plan in all bargaining units that do not currently provide retiree benefits.

8. Contracting out

Our union has a long history of fighting employer attempts to move our jobs outside of bargaining units. To address contracting out, our bargaining objective is to negotiate language that will slow down the transfer of jobs to low-wage countries. This policy conference proposes the following to guide our bargaining on contracting out:

• Our union will attempt to negotiate that, for every 40 hours of work that is performed by a contractor on a sustained basis, one more bargaining unit employee will be hired;

• Our union will demand that employers not replace Canadian production of its products or services, either directly or indirectly (through purchase, outsourcing, joint ventures, or transfer of production), with products or services from plants or firms located in low wage countries. And that the employer agrees not to increase the level of imported components in its production.

9. Employer commitment to information sharing on investment plans

In a changing economy new investment in our workplaces is a double-edged sword. Technological change often eliminates jobs, but, if our workplaces are to be sustainable in the long run, we need to ensure that new investment takes place in our workplaces:

• Our union will bargain that employers review with the union their capital investment and maintenance budgets for the current year and their plans for the next year.

10. Adjustment services to assist laid-off members

Our union’s objective is to negotiate employer commitments to severance and adjustment support for members who will pay the price of industrial restructuring. This policy conference proposes the following principle on severance adjustment:

• Our union will bargain seniority-based severance above legislative minimums. Adjustment support will include re-training, peer-counselling and relocation assistance.

11. Training in the workplace – training rights

The objective of our union is to negotiate training rights into each collective agreement. This policy conference proposes the following principles on negotiating training language:

• a commitment to establish a joint training committee, with a clear mandate, access to information and resources;

•  training opportunities for current employees prior to hiring from the outside;

• support for literacy and basic skills education;

• a commitment to fund apprenticeship programs and / or participate in co-op style training programs.