Time running out to reach NAFTA deal, U.S. congressman warns Canada in stern statement

WASHINGTON — Republicans in the U.S. Congress are ratcheting up pressure on Canada to get a deal done on the North American Free Trade Agreement.

House of Representatives majority whip Steve Scalise, who represents the state of Louisiana, delivered a stern warning Tuesday about “growing frustration” in Congress with what he calls Canada’s “negotiating tactics.”

In a statement, Scalise says Canada is running out of time to get on board with the bilateral agreement in principle negotiated last month — without Canada’s involvement — between the U.S. and Mexico.

“Members are concerned that Canada does not seem to be ready or willing to make the concessions that are necessary for a fair and high-standard agreement,” the statement reads.

“While we would all like to see Canada remain part of this three-country coalition, there is not an unlimited amount of time for it to be part of this new agreement.”

That appeared to be a response to recent indications from the federal Liberal government in Ottawa that it won’t be held to an artificial deadline, nor will it rush the talks to settle for an agreement that it doesn’t consider fair or good for Canadian industries and workers.

“Mexico negotiated in good faith and in a timely manner, and if Canada does not co-operate in the negotiations, Congress will have no choice but to consider options about how best to move forward and stand up for American workers.”

Foreign Affairs Minister Chrystia Freeland, who is scheduled to return to Washington and resume talks Wednesday with U.S. Trade Representative Robert Lighthizer, had not seen the statement when asked about it prior to question period.

But she said Canada has been negotiating in good faith throughout the 13-month process, and took issue with any suggestion to the contrary.

“From the outset of these modernization negotiations, Canada has been extremely co-operative,” Freeland said. “Canada is very good at negotiating trade deals; Canada is very good at finding creative compromises. We have been extremely engaged.”

Negotiators have been working “extremely hard” and are committed to doing the necessary work to reach an agreement, she added — but they aren’t about to settle for just any agreement.

“It is our duty — it’s my duty — to stand up for the national interest and I will always do that.”

The impact of the Pacific trade deal on NAFTA

Flavio Volpe, president of the Automotive Parts Manufacturer’s Association, speaks with Larysa Harapyn about what the CPTPP and NAFTA means for the auto sector as well as governments.

Trump vows retaliation after accusing China of targeting tariffs on U.S. farmers to sway election

WASHINGTON — President Donald Trump on Tuesday threatened further retaliation against China if Beijing targets U.S. agricultural or industrial workers amid a trade dispute, and accused China of trying to sway the U.S. election by targeting farmers.

Trump made the accusations in a pair of Twitter posts as the two sides launched new trade tariffs in an escalating trade dispute.

Beijing said it would retaliate with tariffs against US$60-billion worth of American products after Trump on Monday imposed 10 per cent tariffs on about US$200-billion worth of imports from China.

Trump said China was trying to use trade to undermine him with his supporters before the Nov. 6 congressional election.

“China has openly stated that they are actively trying to impact and change our election by attacking our farmers, ranchers and industrial workers because of their loyalty to me,” Trump wrote. It was not clear what statement from Beijing the president was referring to in his post.

“There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!” Trump added. Trump won the 2016 presidential contest with strong support from those farmers and blue-collar voters.

In July, Beijing launched a short video in English featuring a talking cartoon soybean vouching for the importance of trade. The cartoon points out that nine out of the top 10 soybean growing states voted for Trump in the 2016 presidential election.

“So will voters there turn out to support Trump and the Republicans once they get hit in the pocketbooks?” asks the bean.

© Thomson Reuters 2018

Trade war between U.S. and China could last 20 years, warns billionaire Jack Ma

Billionaire Jack Ma sent out a grave warning regarding the trade war between the U.S. and China: It’s going to last longer and have a bigger impact than most people think.

China’s richest man said the dispute could last 20 years and persist beyond the presidency of Donald Trump, as the world’s two strongest economic powers battle for global supremacy. China needs to strengthen its economy to deal with the conflict and shift trade relations from the U.S. to regions like Southeast Asia and Africa, the chairman of Alibaba Group Holding Ltd. said during a speech at the company’s investor day conference in Hangzhou.

“Short term, business communities in China, U.S., Europe will all be in trouble,” Ma said, pacing a stage in an open white dress shirt and punctuating his remarks with forceful jabs. “This thing will last long. If you want a short-term solution, there is no solution.”

His comments came just hours after China vowed to retaliate against U.S. plans to levy tariffs on about US$200 billion in Chinese goods. Ma said Alibaba will also be affected by the rising tensions, given its wholesale business allows American merchants to source products from China. But he also said the trauma will offer unprecedented opportunities for companies that can take advantage of them.

“We should not focus on this quarter or next quarter or next year’s profit. This is a huge opportunity,” he said. “If Alibaba cannot sustain and grow, no company in China can grow. I’m 100 per cent confident in that.”

Ma’s remarks carry particular weight because he is an icon of Chinese innovation and has been seen as an ambassador to the U.S. Last year, he met with Trump and promised to create 1 million jobs in the U.S. through 2021.

But Ma, a week after he announced plans to hand over the chairman role to Chief Executive Officer Daniel Zhang, left no doubt Tuesday about his support for his own country. If the U.S. insists on levying tariffs on Chinese goods, then China should shift its business to the rest of the world, he said.

“When problems come, learn how to hide, learn how to train,” he said. “I believe Daniel and his team will have the wisdom to fight for the future.”

Ma’s speech underscored the void he will be leaving when he steps down in a year’s time. His soliloquy was accentuated by comments on everything from geopolitical gambits to the importance of self-awareness on individual limits.

He even took a jab at competitor JD.com Inc.’s founder Richard Liu — while rebutting the idea he was forced out of the company. Ma said he received many queries from acquaintances, including questions on whether he was experiencing a “Minnesota” situation, a reference to current rape allegations that JD’s Liu is facing. That elicited a burst of laughter from the crowd.

Ma said he was confident of leaving the company in the hands of Zhang as the CEO bolsters Alibaba’s ambitions in e-commerce, so-called new retail and entertainment. Those initiatives will help sustain revenue growth for the financial year ending in March of 60 per cent, a figure that Chief Financial Officer Maggie Wu first disclosed in May. That kind of growth will likely help Alibaba outpace its global peers, she added.

With US$80 billion worth of strategic investments planted, Vice Chairman Joe Tsai said the company is nowhere near finished with deals. Some of Alibaba’s most expensive investments have been spearheaded by Zhang — including at least US$8 billion worth of deals for traditional chains that underpin efforts to reinvent retailing in China.

Bloomberg.com

Deloitte sounds alarm about Canada’s ‘zombie’ companies

Canada’s economy is in the throes of a zombie outbreak and it’s threatening to devour the country’s productivity.

That, more or less, is the conclusion of a new report from Deloitte, which found that at least 16 per cent of publicly traded firms here could be classified as “zombies” — defined as mature firms more than 10 years old that lack sufficient revenue to cover interest payments on their debt.

The concept comes from a 2017 report by the Organization for Economic Co-operation and Development (OECD) that explored how inappropriate insolvency structures in Europe kept companies intact when a competitive marketplace would have forced them to liquidate or restructure.

In Canada, Deloitte looked at 2,274 companies listed on the TSX and TSX Venture Exchange from 2015 to 2017, and found that 350 firms fit the definition.

But this likely understates the full extent of the issue, Deloitte said, because only a few thousand Canadian companies are publicly traded.

Duncan Sinclair, chairman of Deloitte Canada, didn’t offer a theory for why Canadian companies are more likely to wind up as zombies than their OECD counterparts, where on average 10 per cent of companies meet the definition.

Sinclair said that to be successful, companies need to do more than simply survive.

“To be a company of long standing, of longevity, doesn’t necessarily mean you’re a company that’s doing well,” he said.

“The question is, what can you do as a business leader in that reality to try and reinvigorate and renew and restart that organization, and that’s where we were trying to come up with positive recommendations and comments about what people could do.”

Sinclair said these companies can be a big problem, because they’re not growing or innovating, but they still tie up capital and labour talent that could be put to better use.

“These companies have about $130 billion in capital tied up in them that isn’t part of driving a more productive, vibrant, growing economy,” he said.

“We’re not being critical of what these companies do or the products they deliver, but more that for Canada overall, we need to find a way to get more of these businesses more reinvigorated.”

Overall, the report from Deloitte paints a fairly dismal picture of the Canadian competitive landscape, based on a survey of 700 businesses conducted in April of this year.

“We’ve warned business leaders and policymakers about Canada’s lagging productivity, and we’ve cautioned companies about the impact of the coming age of disruption. Today, challenges that were once on the far horizon are now on our doorstep — and we’re still not ready.”

Deloitte focused on five qualities that globally competitive companies need to embrace — disrupt with resilience, pursue tough decisions, nurture your roots, drive purpose and impact, and finally, assert global leadership.

Overall, Deloitte found that Canadian firms have a mixed record on how well they embrace these five qualities, but on the last one, the results are particularly poor.

The report reveals that 48 per cent of the companies surveyed are not investing anything in exploring new markets outside of Canada, and only 22 per cent are pursuing international expansion “to a great extent.”

“Shifting trade dynamics that are pushing economic power from the West to the East and the increasingly global nature of innovation are making an international focus more important than ever,” the Deloitte report said. “Despite the known benefits — and growing imperative — of going global, only 3.6 per cent of Canadian companies export.”

The report also offered some data that suggested Canadian companies struggle to embrace a mindset for innovation, and management in many firms is too risk-averse.

When Deloitte asked C-suite and senior management at Canadian firms whether the leadership team speaks “openly about failure or setbacks” to a great extent, 54 per cent of executives said that they do. But when Deloitte put the same question to middle-management and below, only 37 per cent of respondents said their company leaders were good at talking about failures.

Rethinking our global ambitions, starting with the ‘call to action’ that is the TPP: Kevin Carmichael

The most important line of Jim Carr’s speech in Parliament on Monday came at the very end.  

“We are naturally global, but we haven’t always been actively global,” the new trade minister said as he introduced legislation to ratify the 11-country Trans-Pacific Partnership. The TPP, he added, “is a call to action.”

The Trudeau government often talks like it’s trying to get its material atop a Google search: the TPP officially is now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, apparently at Canada’s behest; the new agency in charge of corralling international investors is called Invest in Canada; Carr is the country’s first minister of International Trade Diversification, and not merely the trade minister, as he himself informed the House during the early stages of debate over the TPP bill.

So taking Prime Minister Justin Trudeau and his cabinet members seriously can be hard. But when they stop reducing the English and French languages to phrases that algorithms can understand, they sometimes hit the right note, as Carr did with his first high-profile speech since joining the team of ministers supported by Global Affairs.

Carr’s conclusion stood out because it reflects a shift in thinking in Ottawa. For decades, the approach of governments has been to sign trade agreements and assume that everything else would take care of itself. That attitude flattered Canada’s executive class, a group of (mostly) men and women whose idea of adventure is a business trip to San Diego. Carr’s comments reflect a growing recognition among policymakers that if they think diverse markets is in the national interest, then they will have to make it as easy as possible for Canadian companies to find them.

According to research by the Trade Department when it was still called the Trade Department, only Finland relies more on its 500 biggest exporters to generate international sales. Stephen Tapp, deputy chief economist at Export Development Canada, found recently that Mexico is the only big economy that is more reliant on a single trading partner than Canada. Both countries are extreme outliers in the degree to which the value of their exports derives from trade with one country, in each case the United States. Most advanced countries spread themselves wider, although it must be said that no other countries enjoy preferential access and relatively open borders with the world’s largest economy.

Trade responds to economic gravity the same way suspended objects respond to the pull of Earth. That’s why Canada’s biggest export market always will be the one directly south of the border. But events in the U.S. over the past decade have provided hard lessons for why it’s important to give yourself options. The Great Recession crushed Canadian exports partly because the country had done too little to develop links to fast-growing markets in Asia. And then Americans elected Donald Trump, who has followed through on threats to rewind decades of globalization, including a rewrite of the North American Free Trade Agreement.   

“This bill … speaks directly to Canada’s diversification imperative,” Carr told Parliament. “As a middle power, we cannot afford the status quo and we cannot afford to wait for the world to come to us.”

Canada has had an odd history with the TPP, first devised by Brunei, Chile, Singapore and New Zealand in 2005, and then essentially taken over by the United States as part of former president Barack Obama’s “pivot to Asia.” Twelve countries eventually joined, although former prime minister Stephen Harper waited until near the end.

The Republican-controlled Congress blocked Obama’s attempts to ratify the TPP, and Trudeau was initially hesitant to endorse the agreement. Most thought the TPP was dead after Trump quit the arrangement, but Japan resolved to keep the TPP-11 alive. Trudeau decided to get behind the Japanese initiative, although his commitment again was questioned when he missed a meeting of leaders that was meant to secure the initiative. The remaining countries worked out their differences, and now the TPP is the leading exhibit of Trudeau’s commitment to trying an Asian pivot of his own.

“Canada is now poised to be the only G7 country with free trade agreements with all of the other G7 countries,” Carr said. “To realize this remarkable value proposition, diversification into new markets must be a national project to which every farmer, rancher, fisher, manufacturer, entrepreneur, business owner and innovator commits their efforts.”

The trade minister might be applying the message a little thick, but the idea is right.

Conservatives talk about being the party of free trade; it was Harper who did most of the work on the trade agreement with the European Union, and he got Canada preferential access to South Korea. But he failed on the follow-through. Canada’s trade with Europe and South Korea has changed little. Benoit Daignault, the chief executive of Export Development Canada, said earlier this year that companies were doing too little to take full advantage of the preferential access they have to big, rich markets like the EU.

Carr promised to staff up Canadian trade commissions to help smaller companies break into complicated places such as India and Brazil. That will help. So might embarrassing Canada’s executives into trying harder.

•Email: kcarmichael@postmedia.com | Twitter.com/CarmichaelKevin

Chrystia Freeland to return to Washington this week to resume high-level NAFTA talks

OTTAWA — High-level meetings are set to resume this week in Washington in an effort to bring Canada into a revised North American Free Trade Agreement.

The renewed effort comes as the Opposition Conservatives criticize Prime Minister Justin Trudeau for the tactics his government has been using to get a NAFTA deal done.

Foreign Affairs Minister Chrystia Freeland said Monday that she and U.S. Trade Representative Robert Lighthizer have agreed to meet again face-to-face to try to reach an understanding about each other’s positions on NAFTA, although an exact meeting schedule hadn’t been set.

Freeland said trade officials from Canada and the U.S. have been meeting in the American capital since last Thursday, continuing what the minister described as “intensive” talks aimed at reaching a deal.

The discussions are being held under a Sept. 30 deadline for getting the text of an agreement to the U.S. Congress.

President Donald Trump started the clock ticking last month when his administration informed Congress of a U.S.-Mexico trade pact, which he invited Canada to join.

Freeland told reporters in Ottawa, where MPs were returning to Parliament after their summer break, that she and Lighthizer would meet later this week.

“The specifics of our calendar we haven’t quite yet worked out.”

The Conservatives have for the most part, until now, made efforts to project a team Canada spirit with the Liberals as the talks have progressed.

But Opposition House Leader Candice Bergen criticized the prime minister Monday for his approach to the talks, saying the Conservatives would have done things differently.

“We certainly wouldn’t have gone in and lectured on things like gender rights and the environment,” Bergen said when asked how the Conservatives would have handled the negotiations.

“What the prime minister had done in these trade negotiations is tick people off,” she said.

But when it comes to the NAFTA talks, Trudeau said during a live interview event with Maclean’s Magazine in Ottawa Monday night he would not do anything differently.

Trudeau was asked about two incidents that irked Trump — the first being comments he made during his press conference in Charlevoix, Que. after the G7 summit and secondly — Freeland’s acceptance speech at an award ceremony in Washington where she denounced Trump’s “absurd” tariffs and argued for the preservation of the world’s rules-based order — with or without the United States.

“As I’ve said from the very beginning, Canadians expect me, particularly with this administration, expect us as a government to do two very important things: One is have a constructive relationship with the American government and two, continue to stand up clearly and strongly for our values and our principles and Canadian interests.”

Doing both of these things sometimes “bump up” against each other, said Trudeau, adding that it is important to highlight to Americans who Canadians are and where they stand.

Trudeau said Canada could be days or weeks away from signing a new NAFTA, but qualified his optimism by saying they may not be that close, reiterating that the government is looking to sign a good deal.

While Canada has been pushing for chapters in NAFTA aimed at strengthening labour protections and gender equality, the overall negotiations are said to have stalled over Canada’s insistence that an agreement contain an independent dispute-settlement mechanism.

Trudeau has also vowed to protect Canada’s supply management for dairy and poultry products against U.S. demands for greater access by its farmers to Canada’s dairy market.

Supply management has been a big issue in the provincial election campaign in Quebec, home to about half of Canada’s dairy farms.

Quebec Liberal Leader Philippe Couillard has warned there will be “serious political consequences” if there is any further dismantling of the protections for dairy farmers through NAFTA negotiations.

The issue was expected to play prominently Monday evening in the provincial party leaders’ second election debate — this one in English.

Ontario Premier Doug Ford and his economic development minister, Jim Wilson, were scheduled to travel to Washington on Wednesday for an update on the NAFTA talks, which the premier characterized as critical to his province’s agriculture, automotive and steel industries.

Ford’s team is expected to meet with Canada’s trade officials, as well as the Canadian ambassador to the United States, and the premier said in a statement that he planned to stress the need to protect Ontario workers.

Freeland said she would welcome any efforts by the provinces to bolster Canada’s position at the bargaining table. “I think that the involvement of premiers from provinces and territories across the country has been very positive.”

Forget Canada’s dairy producers, the U.S. ‘sugar cartel’ has an even sweeter deal from its government

Given the frequency and ferocity of the Trump administration’s attacks on dairy supply management, one might think Canada was the only NAFTA country clinging to controversial agricultural protections.

Yet, if the perennial target for free trade advocates in Canada is milk, in the U.S. it is sugar: one of the most fiercely protected agricultural sectors both south of the border and around the world, analysts say.

“Sugar is the prime example of a highly protected industry in this country, no question,” said Alan Deardorff, professor of international economics at the University of Michigan. “We use all kinds of tools — all kinds of tools — to keep the price of sugar well above the world price.”

U.S. sugar producers received the third highest share of “trade distorting” government aid in the world between 2015 and 2017, behind only Vietnam and the Philippines, according to data compiled by Jared Greenville, senior agricultural policy analyst at the Organisation for Economic Co-operation and Development.

In absolute terms, only China provided more aid to its sugar farmers.

What’s more, American protections on sugar imports have been around at least as long as supply management. Though the roots of the current U.S. Sugar Program can be found in the 1930s, tariffs on American sugar date all the way back to the founding of the republic, said John Beghin, professor of agriculture and resource economics at North Carolina State University who has studied the program for years.

“There is a very, very long history of government intervention in this sector and it continues to this day,” Beghin said.

Managed by the U.S. Department of Agriculture, the current program includes a system of “marketing allotments” that limit the amount of sugar that can be sold in the U.S. market to 85 per cent of projected domestic consumption.

These allotments are divvied up among states and producers, while the remaining 15 per cent of consumption is assigned via a quota to imports.

A worker stands next to a pile of raw sugar in a hangar.

All imports exceeding the quota face a levy of 15.36 U.S. cents per pound of raw cane sugar and 16.21 cents per pound of refined sugar — a powerful deterrent to foreign producers for whom the world price for sugar hovered between 17 and 25 cents per pound in 2017. New York Raw Sugar index was trading at 25.60 U.S. cents per pound, compared to world prices of 10.63 U.S. cents, according to Bloomberg.

If sugar prices fall below a minimum guaranteed level, U.S. producers are eligible for a “price support loan”, using their sugar as collateral. If prices don’t pick up, producers can simply forfeit the sugar and keep the loan — while remaining eligible for more loans in the future.

The end result “is domestic sugar prices that are typically twice those of the world sugar market,” said Colin Grabow, trade policy analyst at the libertarian-leaning Cato Institute, who has accused the U.S. government of leading a “nationwide sugar cartel.”

Yet even amid the U.S. led push for freer trade that followed the Second World War, U.S. sugar protections enshrined in the Farm Bill have remained stubbornly in place — despite efforts to dislodge them — a durability Beghin attributes to the outsized political influence wielded by a small handful of U.S. sugar producers, who spend millions on political donations to both Democrats and Republicans.

“This is a typical political economy story with well organized protectionist interests who can lobby effectively to keep the program in place while the losers of the policy don’t use their political muscle because it is too hard to organize people,” he said.

A 2013 study by Beghin found that elevated U.S. sugar prices add roughly US$10 to the average American consumer’s food bill each year — impacts too modest to spur public outrage.

“Of course, multiply that by the number of consumers in the U.S. and that is about US$3 billion going into the pockets of sugar producers and away from consumers,” Beghin said.

For its part, the American Sugar Alliance — which disputes the findings of Beghin’s study — believes trade protections are a necessary “buffer to a distorted world sugar market where countries subsidize and dump their surplus for whatever price it’ll bring,” said Jack Roney, a spokesperson for the organization.

It’s an argument Beghin, Grabow and American food manufacturers dismiss, arguing instead that high prices have driven valuable downstream jobs out of the country to places where sugar is cheaper, like Canada and Mexico.

Yet the Canadian industry has its own complaints with the U.S. Sugar Program, namely, that the U.S. has gradually afforded greater access to Mexican producers of sugar and sugar containing products while maintaining strict limitations on Canada.

In 2008, Mexico was granted unrestricted access to the American sugar market, a short-lived open access that came to a quick end when Mexican sugar flooded the American market in 2013 after a bumper crop year. Mexico subsequently agreed to export limits and a guaranteed minimum price on sugar though exports of sugar containing products remain unfettered by any restrictions.

Due to these allowances — which exceed those offered to Canada — Mexico has been the main beneficiary of the shift in food production, said Sandra Marsden, president of the Canadian Sugar Institute.

“That’s most significant change, that shift in production to Mexico and the rest of the world, not Canada,” Marsden said. “It’s had the impact of stifling growth and worsening our trade balance. From the Canadian sugar industry’s point of view we would like to see improved access to that market.”

The U.S. has gradually afforded greater access to Mexico — but not to Canada.

Prior to the introduction of U.S. quotas in the 1980s, Canadian cane sugar exports to the U.S. averaged approximately 100,000 tonnes annually, Marsden said. Today, Canada’s exports are limited to 10,300 tonnes of refined beet sugar while cane sugar no longer meets U.S. rules of origin criteria. Sugar-containing products are limited to a 59,250 tonne quota, which Marsden said substantially reduced the access Canada enjoyed prior to NAFTA.

And because U.S. policy limits only sugar sales, not production, Canada remains vulnerable to dumping, she says. Since 1995, Canada has had antidumping duties in place to protect against cheap sugar from both the U.S. and the European Union — a move that has faced its own resistance from Canadian food manufacturers who say the duties increase sugar costs here.

Canada hasn’t said much about the U.S. sugar program during the troubled NAFTA talks, though it hasn’t escaped the attention of David MacNaughton, Canada’s ambassador to the U.S.

“Access to U.S. sugar market is also restricted by very high ($357/tonne) tariffs,” he tweeted in June. “Even under ‪#NAFTA, Canadian sugar access is limited to 0.1% of U.S. sugar market. Don’t forget who your best customer is. Let’s work together to keep trade barriers down.”

But while Canada negotiated more access to the U.S. sugar market in the 11-nation Trans-Pacific Partnership — a pact U.S. President Donald Trump walked away from — trade analysts aren’t optimistic the same deal will reappear in a renegotiated NAFTA.

“When the U.S.-Australia FTA was being negotiated, practically the only thing (Australia) wanted was free access for their sugar to the U.S. market,” said Bruce Muirhead, a professor at the University of Waterloo who focuses on foreign trade. “Didn’t even get a sniff of it.”

• Email: npowell@nationalpost.com | Twitter: