But, in Canada’s latest federal budget, there are 1,253 tariffs increases. The fiscal impact: adding $300 million to Canada’s ~$5 billion in existing tariff revenues.
...Yes, there were those 37 tariff reductions, but there was also the measure to ‘modernize’ Canada’s General Preferential Tariff (GPT) regime by ‘graduating’ 72 countries from the GPT; imports from these countries will now face higher tariffs. Mike Moffatt estimates those 37 tariff reductions will be accompanied by 1,290 tariff increases. By my count, there are 84 GPT countries, but I still haven’t been able to track down a list of which countries will be removed from the GPT (Update: Mike Moffatt informs me 12 of these already have separate agreements with Canada, so that brings it to 72). The budget does name some examples: Korea, China (second-most important source of imports to Canada), Korea (seventh) and Brazil (twelfth), and the GPT countries as a group account for more than 20 per cent of imports. This measure is expected to generate some $300 million in extra revenues, on top of about $5 billion in existing excise duty revenues.
So instead of a unilateral reduction in tariffs, the government is planning a unilateral increase. This is not how a pro-trade government behaves. (Imports from the countries with which the Conservatives have negotiated free trade agreements are dwarfed by those from China alone.)
…
I still can’t get my head around the truly bizarre notion that low tariffs are a subsidy to other countries on the part of Canadian taxpayers, especially since raising tariffs requires Canadian taxpayers to cough up an additional $300 million a year to the government. But if we needed any more evidence that this government is not serious about free trade, here it is. Instead of viewing cheaper imports as a way of increasing consumers’ purchasing power, the Conservative government views them as a problem to be solved.
After seven years in power, the Conservative trade legacy consists of higher tariffs and more obstacles to foreign investment. The Council of Canadians must be thrilled.
By Keith Edmund White, Editor-in-Chief Building off of last week's post exploring the growing aboriginal rights grassroots movement Idle No More, there are a few headlines that are worth highlighting.
Harper to Meet with First Nations Chiefs Friday. Harper will hold a meeting with aboriginal leaders, including the face of the Idle No More movement Attawapiskat Chief Theresa Spence, Friday. And Governor General David Lloyd Johnston will be attending.
Harper Faces Federal Court Defeats on Cases Related to Aboriginal Issues. Two recent court decisions show some of the issues driving the Idle No More social movement. From o.canada.com's Natalie Stechyson:
Treaties, land rights and economic opportunities are all on the agenda for the meeting Friday that comes almost a year to the day after a landmark gathering in Ottawa designed to renew and review the relationship between the Crown and First Nations.
That relationship has been tested in court, with the Federal Court the focus of two cases Tuesday, including a ruling in one that said Metis and non-status Indians should be considered “Indians” under the Constitution Act, thus falling under federal jurisdiction. The ruling ended a 13-year legal battle.
While the court didn’t say exactly how the government must work with Metis and non-status Indians, it expected that off-reserve aboriginals would have just as much right to consult with the government over proposed legislation as do those on-reserve.
In the second case, two Alberta-based First Nations are taking the Harper government to court over its budget legislation, adding another layer to the actions aboriginals have taken across the country to protest Bills C-45 and C-38. The chief of one of the First Nations at the centre of the case, said the request for judicial review was a separate and distinct process from Idle No More, the actions of hunger-striking chief Theresa Spence, and the meeting Friday.
Making Friday's Meeting Successful. What constitutes success for Friday's meeting? The National Post offers an insightful editorial from University of Calgary professor and former chief of staff to the minister of Indian Affairs and Northern Development from 2006-2008 Jean-SébastienRioux:
Leaving aside the specific controversies surrounding Attawapiskat Chief Theresa Spence’s hunger strike, or whether Idle No More’s criticisms of omnibus Bill C-45 have merit, let us focus on the upcoming meeting between Prime Minister Stephen Harper and aboriginal leaders on January 11. What would constitute success? What could move the file in a productive direction, for both the government and First Nations?
I have some insight into these issues, having served as the chief of staff to Jim Prentice, Prime Minister Harper’s first Indian Affairs and Northern Development Minister (as the Department was then called), after the Conservatives formed government in early 2006. We dealt with all these difficult issues then, including the backlash from “cancelling” Paul Martin’s Kelowna Accord, which promised $5-billion in cash to First Nation, Inuit and Métis leaders days before the December 2005 writ.
There were successes, and they were built on a policy of keeping the channels of communication open, and continuing to meet with aboriginal leaders through thick and thin. Prentice led the federal plan to improve water quality on reserves; matrimonial real property legislation was introduced to protect the rights of women who divorced on reserve; settlement of comprehensive claims in British Columbia, including Tsawwassen and Maa-nulth, were concluded — with more to come. And, of powerful symbolic importance was the agreement to settle the sad legacy of Residential Schools.
So, while many of today’s issues seem intractable, success in advancing tough files can be achieved with the right set of people at the table, and through perseverance.
...
To return to the original question: What would constitute success on Friday?
First of all, the Prime Minister and national aboriginal leaders should refocus the broadly-titled agenda items: No one can honestly tackle “Inherent Aboriginal and Treaty Rights” in one gathering. Focusing on, say, economic development would be a practical solution.
Within a known set of parameters, such as the budgetary envelope for the next five years, a joint AFN-Government of Canada Task Force with a strong mandate could be appointed to write a plan to engage the country’s most significant untapped labour force by the end of this calendar year. Start with a pilot project and engage successful First Nations leaders in the process as advisors and mentors (one can think of Chief Clarence Louie of Osoyoos; Chief Darcy Bear of the Whitecap Dakota First Nation; and many others).
The danger is that the “grassroots” movement may spin out of control. The government needs the AFN to be a legitimate interlocutor, and both sides need to keep channels open and keep working together to find solutions to the difficult problems facing First Nations. Only the demonstration of progress — not just its promise — will quell the Idle No More movement.
Attawapiskat First Nations Faces Audit, Distraction or Real Issue? And CTV offers an interview with aboriginal activist Ellen Gabriel, who discusses the Idle No More movement in general and responds to the federal audit of Attawapiskat First Nations. Theresa Spence is chief of Attawapiskat First Nations.
Two growing news-stories with two very different routes to prominence.
In Canada the Idle No More movement, which started as a series of teach-ins, has now turned into a growing social movement propelled by Chief Theresa Spence's hunger strike. After 23 days of nothing more than fish borth and herbal tea, Spence still remains strong in her demand: a meeting with Prime Minister Harper.
And in the United States, what was thought to be the end of 'Drama-Filled December' with the fiscal cliff resolved has been jolted by reaction to Speaker Boehner's decision to not permit a vote of Senate-passed Hurricane disaster relief legislation.
Idle No More Aboriginal Movement Is Growing, But to What End?
CTVNews.ca and Jordan Press at Canada.com offer a good primer for the Idle No More Movement.
Attention to the growing movement was sparked in part by Chief Theresa Spence, who launched a hunger strike last month in a bid to secure a face-to-face meeting with Stephen Harper. Spence has taken up residence on Victoria Island in the Ottawa River, wanting to discuss issues at Attawapiskat, her First Nations community located on James Bay.
Spence is also calling for a new relationship between the federal government and First Nations peoples.
Her hunger strike stretched into Day 23 on Wednesday, with Spence vowing to survive on nothing more than fish broth and herbal tea until a meeting is set.
The broader Idle No More movement urges the federal government to honour historic treaty agreements, and organizers are concerned that Bill C-45 -- the omnibus federal budget bill which they say erodes aboriginal rights -- was drafted with no input from aboriginal leaders.
Rail blockades have already taken place in Quebec and Ontario as demonstrations take place around the world, and Spence’s spokespeople said Wednesday in a written statement that the situation “is becoming more volatile.”
The statement added that chiefs who met in Ottawa last week plan to launch “countrywide economic disturbances” if Prime Minister Stephen Harper doesn’t meet with Spence.
On social media, activists were calling for blockades of border crossings on Saturday “to show the government that we are willing to escalate this to a point where we shut down the country.”
The movement, which started as a series of teach-ins on a small Saskatchewan reserve, has grown into a national movement that is now receiving international attention. Spence has become a focal point for Idle No More, subsiding on nothing more than fish broth and water since Dec. 11. She has said she’ll starve herself to death if Harper doesn’t meet with her, but has also suggested that a meeting between the government and native chiefs to discuss treaty concerns would suffice.
Harper has so far not said if he will meet with Spence. Aboriginal Affairs Minister John Duncan has offered to meet with Spence, but she has declined his offers.
On New Year’s Day, a close aide to Spence sent a letter to the founders of Idle No More which quotes Spence as saying that chiefs “must humble themselves and be one with the brave grassroots citizens of our nations.
But Keith Beardsley at HuffingtonPost.ca questions whether the Idle No More continued demand for a meeting with Harper may preclude the best outcome: both PM Harper and Chief Spence to have a face-saving way to improve the the challenges facing First Nations People.
From Beardsley's column where he urges Harper to meet with National Chief Shawn Atleo and former Prime Minister Joe Clark, and for Chief Spence to declare victory--steps which then allow both sides to begin substanial dialogue:
Chief Spence has succeeded in galvanizing First Nations communities, activists and youth to take action. Her efforts have helped the "Idle No more" movement which started in Saskatchewan, to take root and grow into a national movement. The movement will not go away any time soon and it is something both the present and future Canadian governments, as well as the First Nations leadership will have to deal with. There is more than enough here for Chief Spence to declare victory. The Prime Minister also needs a face-saving victory. No national government regardless of its political stripe can be seen to give into a protest for the precedent it will set. He too, needs a way out. Victory for Harper will be one where he can say he did not give in to the protest.
Harper needs to reach out beyond his inner circle, cabinet and departmental advisors. Their advice is stale and hasn't worked so far.
...
Solutions exist, but both sides have to show flexibility, they also need a win-win situation. Both sides want to improve living conditions for First Nations, both sides also want increased opportunities for First Nations, especially for the youth. Who then will be the first to offer a hand in friendship this time and allow the dialogue to begin?
U.S. House Speaker's Sandy Misstep (and now mending): Growing Criticism Over Boehner's Decision to Not Bring Senate-Passed Hurricane Sandy Relief Bill to a Vote
This morning on the House Floor, and now with New Jersey Governor's press conference this afternoon, the excoriations of House Speaker Boehner's decision to pull Sandy relief legislation is growing, and getting more and more play throughout the cable news echo-chamber.
Christie's powerful opening statement at his press conference two hours ago included:
"Last night politics was placed before our oath to serve our citizens. For me, it was disappointing and disgusting to watch...Last night the House of Representatives failed that most basic test of public service, and they did so with callous indifference to the suffering of the people of my state."
Why has passing the Sandy bill so hard for Boehner? Well, no one seems entirely sure--apparently there was a commitment to vote on the bill that then fizzled. But FOXNews says the complaints from Republicans--particularly House Rep. Peter King and Christie--may be for show:
Less than an hour after Christie’s press conference, Republican lawmakers confirmed that the backlash against Boehner was mostly for show, announcing that the Speaker promised a vote on the Sandy aid package on Friday.
Rep. Peter King, R-NY, who earlier Wednesday said that anyone donating money to House Republicans is “out of their mind”, told reporters that he planned to back Boehner for Speaker again.
Update: Boehner mends fences by agreeing to two votes on January 15, reports The Hill:
Speaker John Boehner (R-Ohio) has agreed to hold two votes on Hurricane Sandy aid after coming under withering fire from New York and New Jersey Republicans.
The House will vote to provide $9 billion to shore up the National Flood Insurance Program on Friday and will vote on another $51 billion Sandy spending package on Jan. 15, according to GOP aides after a meeting between Boehner and GOP lawmakers from the affected states.
What to really watch for in a new Canadian "net benefit" test
WSJ reports on suspicions that changes to Canada's "net benefit" rule test will be very similar to Austrailia's approach. But huge missing link in the article: whether Canada adopts an Austrailian-like "net benefit" test or keeps its own, both are basically subjective tests. The one seemingly change: the national security review and "net benefit" review may be combined into one process, though if they are run by two different agencies that wouldn't be a huge reform.
Charles St-Arnaud, foreign-exchange strategist and economist at Nomura, said in the report that Canada’s new guidelines are likely to mimic Australia’s template in how that resource-rich economy judges foreign investments. The Australian criteria include: national security, which is already incorporated as part of Canada’s foreign-investment review; antitrust issues; the impact on tax revenue; jobs and a possible “fair return” for the local community; and the “character” of the investment, which is a catch-all category that considers the investor’s transparency and corporate structure.
Mr. St-Arnaud noted that Australia has a special provision governing state-owned enterprises, such as Cnooc and Petronas, in which policymakers consider whether the planned investment is of a commercial nature or done for “political or strategic objectives.” Matters that could support a SOE-led takeover in Australia include the investor’s willingness to list shares on the local stock exchange. As it happens, Cnooc promised to do just that when it unveiled its initial bid for Nexen in July.
Nomura’s suggestion that Canada might follow the Australia example comes after a Calgary think tank, the Canadian Defence and Foreign Affairs Institute, warned Ottawa not to follow the path of another resource-rich nation–Mongolia–that scared off international investors when it introduced new foreign investment guidelines last spring.
Instead of obsessing over name-changes to Canada's open ended "net benefit" test, the key is to look at whether (1) the test becomes more objective and (2) if the "net benefit" test and national security review are streamlined into one test, or if fewer federal agencies are responsible for foreign takeover bid reviews.
Would Approving CNOOC's Bid for Nexen Give China to Much North Sea Oil Control?
And, while Canada is still reviewing the CNOOC bid under its current "net benefit" test, Bloomberg obtained a briefing memo prepared for Prime Minister Harper on the Nexen bid that emphasizes the considerable amount of control China would have over Canada's North Sea oil operations.
CNOOC Ltd.’s $15.1 billion takeover of Nexen Inc. would give the Chinese company the largest stake of an oil field in the North Sea that “has increasingly influenced” global oil prices, according to a memo sent to Prime Minister Stephen Harper by Canada’s top government worker. ... It also cites the commitments CNOOC promised at the time, including establishing Calgary as its North and Central American head office, maintaining Nexen’s employment level and management, and enhancing Nexen’s capital spending. The memo says the bid would mean the Chinese government would own a 16 per cent share of Syncrude, Canada’s biggest oil- sands project in production, with China Petroleum and Chemical Corp., known as Sinopec, owning 9 per cent and CNOOC acquiring Nexen’s 7 per cent.
Critics concerned that key Canadian interests in intellectual property, pharmaceuticals and agriculture were impaired by ‘sitting out’ of Round 14 of the Trans-Pacific Partnership (TPP) are focused on a relatively insignificant scene within a much larger mural. Rather, the issue is whether the TPP compliments other Canada trade agreements, or if it conflicts with the function and purpose of other bilateral agreements. Only then can we determine whether the TPP is part of a cohesive, beneficial trade strategy in Asia, or a fractured approach that will create confusion for Canadian businesses operating overseas.
First, this piece outlines the calls for a more aggressive Canadian trade strategy in Asia. Second, it discusses the implications of Canada’s lacking a true seat at the TPP negotiating table in Round 14. Third, it addresses other potential bilateral trade agreements with China and Japan. It concludes that the TPP functions as a baseline to expand trade, upon which other more specific trade agreements can be built, such as those with Japan or China.
Calling for a More Aggressive Asian Trade Strategy
In the last six months, there have been increasing calls for Prime Minister Harper to adopt a more aggressive Canadian trade strategy in Asia.[i] The underlying impetus appears to be a perception that “Canada must negotiate solid, ambitious trade agreements...to help replace declining trade with the USA.”[ii] However, individual initiatives, including the TPP and bilateral trade agreements with China and Japan have received harsh criticism from political opponents[iii] and interest groups.[iv] These mixed messages create a challenging political environment where leaders can be faced with what appears to a “no-win” situation in domestic Canadian politics.
Looking Back at TPP Round 14 and Forward to TPP Round 15
Initially, Canada’s so-called “absence” raised the important question of whether it will “lose” by sitting out Round.[v] At the heart of this issue is Canada’s agreement to abide by the texts that have already been negotiated and agreed upon by the nine current TPP members.[vi] However, this absence has not harmed Canadian interests on key issues including intellectual property, pharmaceuticals, and agriculture.
Canada’s “absence” is simply explained by the fact that each negotiating country must first ratify Canada’s participation through their own internal, domestic processes. This process was only completed on October 9, 2012.[vii] Now that Canada has formally joined negotiations, the key is to look forward towards Canadian goals and aspirations for what the TPP should look like in the end.
TPP: A “High Standard” Trade Agreement In Canada’s Interests?
Some Canadians have raised concerns that not only is the TPP mostly beneficial to the U.S., but that the TPP is redundant in light of other Canadian trade agreements.
First, many consider the U.S. to be the driving force behind the TPP’s most restrictive obligations.[viii] Of the nine countries currently negotiating the TPP, the United States has some of the ‘highest’ levels of regulation across a number of economic sectors. Likewise, the United States is well known for viewing the TPP as a vehicle for a “state-of-the-art” or “high standard” trade agreement.[ix] While not confirmable, the inference that could be drawn is that the United States may attempt to use the TPP either to develop unique “high standards” (think not of NAFTA-2, but more likely something akin to a next generation Paris[x] or Berne Convention[xi] or to conform the rights and obligations available in other nations with those available under existing U.S. law. This has created political friction in Canada. Critics are concerned that participating in a “high standard” agreement means radical changes in Canadian policies, ranging from “drugs [pharmaceuticals], copyright, [to] environmental and public health rules.”[xii]
Second, some dispute that the TPP actually adds any benefit that Canada does not already receive through NAFTA or other bilateral trade agreements (consider Chile and Peru).[xiii] Simply, NAFTA already includes the United States and Mexico, which “make up the lion’s share of the TPP” in terms of market size and trading power.[xiv] This leads to a legitimate question: “How much more free access can yet another [multilateral] free trade agreement provide?[xv]
While the draft texts of the TPP are not public, official statements from the United States do not suggest that any extensive agreements were reached on the issues most pressing for Canadians. For instance, the United States Trade Representative’s press release on the Leesburg Round noted “progress” on issues including market access, customs, rules of origin, technical barriers to trade, sanitary and phytosanitary standards, cross border services, telecommunications and government procurement.[xvi] However, the release only reported a “continued focus” on intellectual property issues.[xvii]
If more extensive agreements had been reached on intellectual property rights, it is likely that these issues would have been listed in the first “progress” or “mov[ing] forward” statements. This suggests that no major agreements were reached regarding intellectual property rights. On the other hand, it is not clear from this statement what types of agreements where reached regarding key Canadian agricultural products, such as dairy, grain, and (loosely defined) lumber. Again, while pharmaceuticals were not directly mentioned, it is unlikely that any significant progress was made on these issues. However, pharmaceutical issues are frequently addressed as a component of intellectual property rights, or even investment or manufacturing (depending on how one wishes to address these issues). This should relieve Canadian concerns, indicating that Canada still has time to make its positions clear and exert significant influence over the outcome of the TPP.
TPP Negotiations: Multilateral, Bilateral, or Other?
On September 24, 2012, the Office of the USTR held a hearing regarding Canada’s entry into TPP negotiations.[xviii] While seen as a forum for discussing specific interests and objectives,[xix] what is peculiar about the hearing is the official silence from the Canadian government. In fact--during, immediately prior to, and immediately after the 14th Round (as well as the USTR’s public hearing on Canada’s entry into the TPP), there were no official news releases on the subject from Prime Minister Stephen Harper, Foreign Affairs and International Trade Canada (Canadian Ministry), or the Embassy of Canada in Washington, D.C. One would think that participation or comment on these proceedings would give Canada the opportunity to publically advocate for its most important values (for both domestic and international audiences) as well as exert pressure just before Round 15.
In fact, on the eve of Canada’s official joining to the TPP, Ed Fast, the Canadian Minister of International Trade and Minister for the Asia-Pacific Gateway only released a short statement, remarking that “[o]pening new markets and increasing Canadian exports to fast-growing markets throughout the Asia-Pacific region is a key part of our government’s plan to create jobs, growth and long-term prosperity.”[xx]
Canadian Bilateral Trade Agreements with China and Japan
In Canada’s view, Japan and China are two markets that have remained largely untapped. In 2011, the Canadian-Chinese trade relationship was valued at approximately $46.8 to $65.6 billion USD.[xxi] Similarly, a joint study concluded that a bilateral free trade agreement between Canada and Japan could add $4.4 to $4.9 billion to Japan’s GDP and $3.8 to $9.0 billion to Canada’s GDP.[xxii] While Canada has had a tepid response to Chinese calls to begin a bilateral trade negotiation,[xxiii] Canada and Japan have announced that their first round of negotiations in support of a bilateral trade agreement will commence on Nov. 26, 2012.[xxiv]
[i]Don Campbell, Paul Evans &
Pierre Lortie, A Coherent Strategy Towards
Asia Needed (Sept. 12, 2012),
http://www.asiapacific.ca/editorials/canada-asia-viewpoints/editorials/coherent-canadian-strategy-towards-asia-needed.
[ii] Peter Clark, TPP Negotiations Present Far More Questions
Than Answer, iPolitics (Oct.
12, 2012) http://www.ipolitics.ca/2012/10/12/peter-clark-tpp-negotiations-present-far-more-questions-than-answers/.
[iii] CTVNews Video, Opposition Grills Harper Over China-Canada
Trade Deal,
[iv] Heather Scoffield, Investment Deal with China Would Leave
Canada a Resource Colony: Opponents, Canadian
Business (Oct. 30, 2012), http://www.canadianbusiness.com/article/104651--investment-deal-with-china-would-leave-canada-a-resource-colony-opponents;
Sheila Harrington, Trade Agreements
Costly for Taxpayers, Canada.com
(Nov. 2, 2012), http://www.canada.com/Trade+agreements+costly+taxpayers/7487585/story.html.
[v]See, e.g., Inside U.S. Trade, Canada, Mexico To Join TPP Talks In October After Leesburg Round, World Trade Online, August 31, 2012, available at http://insidetrade.com/Inside-Trade-General/Public-Content-World-Trade-Online/canada-mexico-to-join-tpp-talks-in-october-after-leesburg-round/menu-id-896.html.
[vi]CBC
News, What Is the Trans-Pacific
Partnership?CBC News World,
June 20, 2012, available at http://www.cbc.ca/news/world/story/2012/06/20/f-trans-pacific-partnership-explained.html.
[vii] Press Release, Honourable Ed
Fast & Foreign Affairs and International Trade Canada (Oct. 9, 2012) available at http://www.international.gc.ca/media_commerce/comm/newscommuniques/2012/10/
09a.aspx?view=d.
[viii] Peter Clark, TPP Negotiations Present Far More Questions
Than Answer, iPolitics (Oct.
12, 2012)
http://www.ipolitics.ca/2012/10/12/peter-clark-tpp-negotiations-present-far-more-questions-than-answers/
(“The TPP could result in extra-territorial application of U.S. laws,
particularly in the Intellectual Property area including criminalization of
non-commercial infringement.”).
[ix] See, e.g., USTR, FACT SHEET: The United States in the Trans-Pacific Partnership: Increasing American Exports, Supporting American Jobs, June 19, 2012, available at http://www.ustr.gov/about-us/press-office/fact-sheets/2012/june/us-tpp-increasing-american-exports-supporting-american-jobs; see generally, Banyan, Parners and Rivals, Another Ambitions Trade Agreement Gets Bogged Down, Sept. 22, 2012, http://www.economist.com/node/21563292. [x]World Intellectual
Property Organization, Summary of the Paris Convention for the Protection of Industrial Property (1883), WIPO.int, http://www.wipo.int/treaties/en/ip/paris/summary_paris.html (last visited Nov. 13, 2012).
[xii] Brent Patterson, NEWS: Council Critiques Canada’s Entry into
the Trans Pacific PartnershipTalks,
Council of Canadians, June 20, 2012, available at
http://canadians.org/blog/?p=15828; but
see UPS, Canada Using Global Trade to
Grow Economy, Says UPS COO (June
19, 2012) available at http://pressroom.ups.com/Press+Releases/Archive/2012/Q2/ci.Canada+Using+Global+Trade+to+Grow+Economy,+Says+UPS+COO.print.
[xiii] John Hancock, The Wrong Trade Agreement, Canadian Int’l Council, June 21, 2012, available at
http://www.opencanada.org/features/blogs/roundtable/the-wrong-trade-agreement/.
[xviii] USTR, USTR Holds Public Hearing on Canada and the Trans-Pacific Partnership,
USTR.gov, Sept. 24, 2012, available at
http://www.ustr.gov/about-us/press-office/press-releases/2012/september/USTR-hearing-Canada-TPP.
[xix]See, e.g., John Kelly, Clay Hough Testifies on Canada Joining TPP
Talks, IDFA.org, Sept. 26,
2012, http://www.idfa.org/key-issues/category/global-markets/details/7689/.
[xxi] Economic Partnership Working
Group, Canada-Chinese Economic
Complementaries Study.3.4.1, Foreign Affairs & International Trade
Canada (Oct. 29, 2012), http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/china-chine/study-comp-etude.aspx?view=d#cn-tphp.
[xxii] Randall Palmer, Canada, Japan to Start Trade Talks Next
Month, Reuters (Oct. 29,
2012), http://ca.reuters.com/article/domesticNews/idCABRE89S19320121029.
[xxiii] Paul Vieira, Canada Trade Min: Committed to Deeping
Trade/Investment Ties with Canada, WSJ (Oct. 1, 2012),
http://online.wsj.com/article/BT-CO-20121001-708453.html.
By Keith Edmund White Will Obama’s second term put the Canada-U.S. relationship on center-stage? A quick round-up of Canadian headlines shows three major issues dominating the post-election Canada-U.S. relationship: (1) in the short-term, Canadian apprehension over America’s ability to reach a debt deal, (2) Keystone XL, and (3) moving forward on the Beyond the Border Initiative. But let’s not forget two other wrinkles from America’s election night: Heidi Heitkamp’s Senate win and the failure of a state constitutional roadblock to the Detroit River Crossing Project. And when you add to this Canada’s critical role in the Trans-Pacific Partnership talks, the Canada-U.S. relationship will be getting its fair due during Obama’s second term.
BC’s The Tyee offers a cautious Canadian reaction to President Obama’s re-election. The article's two chief points: (1) If Obama does not reach a debt deal with Congressional Republicans, who still hold the U.S. House of Representatives, America could tumble into recession, and drag Canada along for the ride; and (2) hope that Obama will clear full construction of the Keystone XL pipeline. But The Hill calls Keystone XL an energy election-night ‘loser,’ seeing a Romney White House fast-tracking the project. My guess: with Keystone XL already under construction, I don’t expect the Obama administration to stall Keystone XL’s northern construction much longer.
And then, of course, one major pit-fall in Canada-U.S. relations was avoided. Yesterday Michigan voters shot down a state constitutional amendment that would have delayed—and perhaps killed—plans to build a second, bridge crossing connecting Detroit to Windsor over the Detroit River—a project with obvious economic impact in both Canada and the United States, and strongly supported by Canadian Prime Minster Harper.
Over the last four years, Canada has too often benignly neglected by our neighbour. But the next four years presents an opportunity to build a North American manufacturing base. The US business community has a partner in Canada. One-third of our cross border business is intra-company and another third is comprised of intra-industry shipments. Our best ideas are each other's next new product. The ball is in our court, as it always is when dealing with an American administration. But we do not have to start at square one. Two initiatives between President Obama and Prime Minister Harper have already been launched – the Beyond the Border Action Plan and the Regulatory Cooperation Council. The ambition is great, but the progress is slow. Now that the elections are behind us, Ottawa and Washington need to get back to the table on these two efforts. We have a major opportunity right now. 2013 must be the year that celebrates our cross-border partnership and the strength that our industries bring to each other's communities. Obsolete border management policies and unnecessary regulations must be replaced by a modern framework that will protect us from the economic storms ahead.
But, the big story—and not once mentioned on cable news last night—is that an Obama victory will continue progress, without the interruption of a presidential transition, on the Trans-Pacific Partnership (TPP). As earlier reported on CUSLI-Nexus, Canada may likely play a critical role in ensuring these talks succeed. And if this massive trade deal succeeds, it will likely—over the medium and long-term—generate more economic growth--and, at times, painful economic shifting--than any stimulus or jobs bill. Furthermore, how the TPP goes may well portend how the future effectiveness of the World Trade Organization.
What’s the importance of listing these seemingly unattached policy items? First, it seems that two big pressure points in the Canada-U.S. relationship—Keystone XL and the International Detroit River Crossing—have (or soon will be) taken care of. Next, Canada represents low-hanging economic fruit for the United States. And—after Obama does heavy lifting on a debt deal and a job bill—the name of the White House economic strategy will be (with one major exception) connecting small dots to generate growth. One major and needless U.S. economic drain? Canada-U.S. border regulatory burdens that could be eased through smart, cooperative policies.
Now, naysayers may argue the United States has had trouble keeping focus on Canada. But, if the TPP talks keep moving ahead, the United States simply won’t have this luxury. Hence, whether pushed by state-specific issues or international trade diplomacy, the Canada-U.S. relationship may just see its fair share of time on center-stage during Obama's second term.
A Chinese state-owned company, CNOOC, wants to take a controlling interest in Canadian energy company Nexen. The hang-up? The bid must satisfy the “net benefit” requirement that Canadian law imposes on all foreign direct investments exceeding C$299 million. Critically, while the “net benefit” test is—on paper—a six-pronged legal test, a political figure—Minister of Industry and member of the Stephen Harper cabinet member Christian Paradis—applies the test. Thus, political, not the legal, factors will likely determine if CNOOC’s bid passes the net benefit test. CUSLI-Nexus staff writer Eskor Edem reviews the “net benefit” test, identifies the three political factors critical to Mr. Paradis’ decision, and concludes that CNOOC’s bid will likely pass the “net benefit” test. But that won't be the end of the story: the CNOOC bid still has other administrative hurdles to clear.
“Net Benefit” Test
Although established as statutory law, the “net benefit” rule is really more a political test allowing the seating administration the block foreign investment injurious to its policy vision. Under the Investment Canada Act transactions are reviewable when they exceed the threshold of C$299 million. The final decision of whether a transaction is a “net benefit” is made by the Minister of Industry. As the Minister is an appointed political position, the economic policy of the governing party plays a prominent role in reaching an answer to the “net benefit” question. In determining whether foreign direct investment is a “net benefit”, the Minister of Industry considers a number of factors related the potential economic and cultural impact of the investment. The economic factors weighed range from the potential impact on domestic jobs, the participation of Canadians in the venture, and the impact on Canada’s global competitiveness. Cultural factors can be seen as a catch-all for a range of politically sensitive, non-economic topics—like a foreign investment’s impact on Canada’s indigenousness population, the First Nations.
Lessons from Canada’s “Net Benefit” Rejection: BHP Billiton and Potash
In 2010, then Minister of Industry Tony Clement rejected BHP Billiton’s proposed hostile takeover of the Canadian mining company PotashCorp. The negative impact of BHP’s proposed takeover on Saskatchewan’s mining economy was the determinative factor in Minister Clement’s rejecting the bid on “net benefit” grounds. Saskatchewan is home to 1/3 of the global potash market. Naturally, this means that the government derives significant revenues from potash mining companies—15% in 2008. But the province also plays a critical role in potash pricing: with a Canadian industry body, Canpotex, the sole distributor for Canadian potash that is marketed outside North America. Canpotex’s exclusive control over the marketing of Canadian potash provides price stability on which Saskatchewan can rely in estimating its future revenue stream.
PotashCorp. made up 54% of Canoptex’s output at the time of BHP’s bid to acquire it. As such, BHP’s insistence that it would take PotashCorp. out of Canoptex would have dealt a significant, if not fatal blow, to Saskatchewan’s influence on the price of potash on the international market. Opening up Canada’s potash market posed a serious threat to the Canadian economy and, perhaps more importantly, Saskatchewan’s finances. A law firm advising the Province on the matter in Jan. 2011, Jones Day found:
[T]here was a risk of significant job losses by other Canadian potash manufacturers as a result [of] BHP’s plans to run its Jansen mine “flat out” and its threatened departure from Canpotex… Saskatchewan could [have] los[t]up to CAN $6 billion in tax revenues if BHP operated PotashCorp mines at full capacity.
Independent marketing could have potentially resulted in the (1) the loss of price setting abilities which the province had enjoyed to date; (2) a significant decline in the potash prices largely due to BHP’s level of production; and (3) a significant decline in tax revenue.
Given the high level of public disapproval of the takeover, approving BHP’s bid carried significant political down side for the Harper administration. On top of public disapproval, Conservative provincial officials voiced their avid resistance to the transaction. In making their case against BHP, provincial officials argued that an “increasingly strategic” resource required maintaining Saswatchan’s influence over global potash prices. According to some, approving BHP’s takeover held the potential of reducing Canada’s food and energy security.
The “Net Benefit” Test’s Political Factors and Why CNOOC Passes the Test
A decision in CNOOC’s favor would provide credibility to Prime Minister Harper’s policy of strengthening Canada’s economic ties with Asia. Minster Paradis’ final determination will be guided by Prime Minister Harper’s goal of ensuring Canadian natural gas and oil producers get access to China's growing energy appetite. As such, application of the “net benefit” rule to CNOOC will likely diverge from the strict letter of the law. In reaching his decision, Paradis will likely consider three political factors: (1) the nature of the targeted company; (2) The level of provincial support for the CNOOC’s acquisition; and, (3) the possibility of greater market access for Canadian firms operating in China.
Unlike Potash, Nexen is not uniquely dominant in Canadian industry. Nexen only ranks as a middling player in Canada’s oil and gas sector. John Manley, a former Liberal Minister of Industry, made clear if a larger Canadian oil and gas company was at stake, the government would be likely to block a takeover bid on “net benefit” grounds, in this Bloomberg Sept. 2012 article:
‘[If Suncor were the target company]…you would have a different set of questions being asked, simply because of [Suncor’s] scale and…importance in the Canadian context,’…Suncor is Canada’s ‘biggest independent, and that puts it in a somewhat different category.’
CNOOC’s takeover of Nexen does not threaten Alberta’s finances. Unlike the Potash market, in which Canoptex plays a price setting function, factors inherent to the oil and gas markets prevent any single player from determining market prices. In the oil and gas market prices are largely set by supply and demand, with spontaneous political events playing an influential role in short-term price volatility. As such, Alberta does not have the ability to set the market price its oil and gas producers get for their output. Hence, in this regard CNOOC’s acquisition of Nexen will not affect Alberta’s royalty stream; thus, CNOOC’s bid avoids a major point of contention in BHP’s bid.
Furthermore, unlike the Potash bid, the provincial government of Alberta supports CNOOC’s bid. During a recent interview, Alberta’s Premier Alison Redford spoke favorably of CNOOC’s acquisition of Nexen, stating:
At the end of the day, our view is that if this is in Alberta’s interest, it should go ahead. And we think there’s a lot of benefit for Alberta and Canada in this deal.
And in discussing CNOOC’s bid, public commentators have stressed a potentially large up-side for Canada if the bid is approved: If Canada grants China market access within the energy sector, other Canadian companies may find it easier to get access to the burgeoning Chinese marketplace. As reported by the Wall Street Journal, DBRS debt rating agency has found:
‘This transaction would dramatically improve Canada-China relations, which could in turn provide greater economic trade between the two countries.’…add[ing] that approval could also open the door for Canadian businesses in China.
And, obviously, CNOOC’s Nexen bid would strengthen energy ties between China and Canada. Given Canada’s unease with the Obama administration’s reluctance to approve the Keystone XL project, laying the foundation for substantial growth in Sino-Canadian energy trade has become a major policy objective of the Harper administration.
Conclusion
The CNOOC bid, albeit not without some belly-aching, is very likely to pass Canada’s “net benefit” test. First, while superficially a 6-pronged legal test, the “net benefit” rule is really more a political test: giving the Canadian government a way to block foreign investment that may compromise core Canadian economic interests. And as BHP’s failed bid shows, the political variables at play are: (1) the size and scope of the targeted Canadian company, (2) support on the provincial level for the acquisition, and (3) the economic rewards of approving the bid. With Nexen a relatively small player in the Canadian oil and gas industry, Alberta’s support of CNOOC’s bid, and the Harper government’s eagerness to open up the lucrative Chinese marketplace to Canadian firms, CNOOC’s bid for Nexen is very likely to clear the “net benefit” hurdle.
Ignore reports of slipping NDP
support, which the
Globe and Mail attributes to the Parti Quebecois's (PQ) narrow victory in Quebec last month. The PQ may be just
what the NDP needs to take Ottawa by storm in 2015.
OK, first some background for
those not hip to the Canadian political scene.
In what has been historically a two-party contest for Canada’s national
government, the NDP—for the first time—offered a Canadian third way: crushing the once-dominant Liberal Party, but
still failing to stop Canada’s conservative party—and Prime Minister Harper—from
turning their minority government into a majority government (i.e. the
Conservatives had been the biggest party in Parliament, but didn’t have a majority
of votes until 2011). So, now all three
parties are plotting how best to approach Canada’s next election, slated
to occur on or before October 19, 2015.
Now, all this Ottawa long-game chess-playing
gets delightfully complicated by provincial politics. Just like the first crack in the Obama 2008 coalition
was a Republican winning Virginia’s 2009 gubernatorial race, the narrow
victory of the Parti Quebecois (PQ)—a pro-Quebec secessionist party—has
injected more drama in Canadian politics.
For better or worse, Quebec—owing to history and the ever-present chance
another independence referendum—still grabs what some undoubtedly consider a
disproportionate share of the nation’s media attention. So the PQ’s victory has brought headaches—and opportunity—for
Canada’s three major national parties.
But, don’t worry, the political pain is being shared, with the PQ already
nursing some
of their own political missteps.
Why should the PQ running Quebec
worry the national Conservatives and NDP?
Well, for the Conservatives, beyond the PQ possibly dragging the country
into a constitutional/secessionist crisis (unlikely given their minority government
status), the PQ is Quebec’s left-leaning party.
(Note: The NDP has not built a
provincial party in Quebec, even though it owes its ‘government-in-waiting’
status to Quebec voters.) What’s
this mean? The PQ, according to Paul
Wells at Macleans, “is already doing the opposite” of the Harper government on
spurring investment, immigration, and energy.
But the big issue here is taxes.
From Wells’s jeremiad-bordering editorial:
Marois’s new government is already doing the opposite of what Harper laid
out at Davos. Systematically. It’s like she’s keeping a checklist.
“Is it the case that in the developed world,” Harper told the Davos toffs,
“too many of us have, in fact, become complacent about our prosperity, taking
our wealth as a given, assuming it is somehow the natural order of things,
leaving us instead to focus primarily on our services and entitlements?”
Marois replies: nope! There’s still plenty of time to take wealth as a given
and to focus on entitlements. The university tuition increases that were the
object of half a year’s protests are cancelled. But the increased student aid
that was supposed to compensate for the tuition hikes remains in place. That’s tens
of millions of dollars’ worth of increased burden on universities. “We will
continue to make the key investments in science and technology necessary to
sustain a modern competitive economy,” Harper said at Davos. Marois is digging
a funding hole for universities that will make good science that much harder to
afford.
Will this actually cost the
Conservative votes?For now, the overall
consensus of the Canadian media elite is that the PQ leftward
push is politically
foolish and economically wrong-headed.So, the PQ is doing just what the
right-leaning party of Quebec—and the nation—needs to win, right?Show voters hungry for a change that they should give
the reigns to a right leaning, not left leaning party.Naturally, the Liberals—decimated at the
national level, but still strong in Quebec—can play this to their
advantage:able to cherry-pick what
works for the PQ while bashing what doesn’t, and position themselves as a
changed and renewed party that offers the best bet for Quebec voters.
But I suspect the real winners
of the PQ in Quebec will be the NDP. For
Conservatives and Liberals to get traction from the PQ, the PQ must fail. But the NDP can strengthen its next national
bid whatever the outcome of the PQ’s minority government. Yes, the PQ’s victory froze attempts to create
a robust, provincial NDP party in Quebec.
But let’s not overlook the obvious advantage the NDP gets in a short-term
(the PQ minority government will likely fall well before the next federal
election): the chance to learn from
every misstep and success of the left-leaning PQ government.
PQ policy subscriptions are—with
the exception of succession—pretty close to those of NDP voters. What’s the NDP missing? Support of new and current Liberal
voters. How better to see what messages
work—and perhaps witness their economic impact—than to have the PQ try push its own independent agenda. If they
succeed, the NDP can make these provincial policies successful national talking
points, without the dead-weight of Quebec independence. And if certain PQ policies crash and burn,
the NDP has the time to distance and differentiate their national plans before
2015. In short, it’s a no-lose for the
NPD, barring an NDP debacle of such cataclysmic proportions that Quebec voters become
lock-step Harper-ites (unlikely).
So, ignore the polls. In 2015, the Conservatives will be the
classic hangers-on—needing a resurgent economy and new ideas to hold onto
Canada’s parliamentary reins for a fourth, yes fourth, time in a row. The Liberals,
well, are in the middle of a leadership contest that could be confused
with a nostalgia-heavy spirit quest. (Yes, I freely double-dip Paul Wells pieces whenever
I can; but, do read Gerry Nicholls's compare and contrast piece on Stephen Harper and Liberal upstart/heir-apparent Justin Trudeau.) And the NDP now has a PQ party too weak to sink their brand in Quebec, but just strong enough to goad
Harper, and show the NDP how—or how not—to win in 2015.
My advice to NDP Leader Thomas
Mulcair: don’t sweat the polls or the
PQ. Focus on using the PQ and
Conservatives as foils to create an attractive center-left alternative. Oh, wait. He already
is.
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