CANADA ECONOMICS

VENEZUELA

The Globe and Mail. 19 Jun 2017. Canada may lead Venezuela arbitration. Sources confirm Ottawa is a contender to chair group looking to negotiate settlement with embattled South American country
MICHELLE ZILIO, OTTAWA
STEPHANIE NOLEN, RIO DE JANEIRO

An anti-government demonstrator protests against President Nicolas Maduro in Caracas on June 12. More than 70 people have died in 12 weeks of street protests across the country.
Canada could lead a regional effort to address the crisis in Venezuela, according to sources with knowledge of the diplomatic efforts in the South American country.
Earlier this week, Peru’s Foreign Minister Ricardo Luna publicly floated the idea of Justin Trudeau acting as a mediator for the Venezuelan crisis, citing the Prime Minister’s “global power role,” according to reports out of the country. The proposal comes after Peruvian President Pedro Pablo Kuczynski recommended an international arbitration process to preserve democracy and avoid a “bloodbath” and refugee crisis in Venezuela.
Speaking to The Globe and Mail on the basis of anonymity, a veteran conflict mediator with knowledge of the diplomatic talks in Caracas confirmed that Canada is being considered to chair a contact group of governments to facilitate a negotiated settlement in Venezuela.
“There are a few potential advantages: Canada’s constructive influence and relationship with the U.S.; Trudeau’s and Canada’s good relationship with the left in the region, including Cuba; and Canada’s more neutral image generally in Latin America,” said the source.
More than 70 people have died in 12 weeks of street protests across the country, which began after Venezuelan President Nicolas Maduro attempted to strip the opposition-dominated Congress of its powers.
“There is some discussion about Canada playing a role in a group of countries,” said a Western diplomat in Caracas, also speaking on the basis of anonymity. “Canada is not a shoe-in, but one of a group of countries bandied about.”
A Canadian government source said a contact group is one possible option but added that Canada hasn’t been formally asked to lead one.
However, experts say Venezuela is unlikely to accept Canada’s help – or any foreign government’s assistance for that matter – right now. Venezuelan Foreign Minister Delcy Rodriguez tweeted on Tuesday that Venezuela rejects Peru’s promotion of an international intervention.
The Maduro government characterizes the country’s crisis as the result of an international right-wing-led economic war and as a fiction created by oppositionled media. And while the country is desperately short of food and essential medicines – with inflation running at more than 700 per cent – some hardliners in the Maduro government appear to believe they can continue to hold out. The government sold $2.8billion (U.S.) in bonds to Goldman Sachs in late May, and is still exporting oil. But the problem is becoming increasingly regional in nature; 150 Venezuelans a day are seeking asylum in Brazil alone and an estimated 550,000 are living undocumented in Colombia.
International human-rights lawyer and former Canadian justice minister Irwin Cotler, who represents jailed Venezuelan opposition leader Leopoldo Lopez, said an arbitration process is not possible without co-operation from the Venezuelan government.
“When you have a situation where Venezuela not only has not agreed to this but, in fact, rejects it … then I don’t know how helpful such an initiative would be able to be – however much, I agree with the notion of the Foreign Minister and President of Peru that Trudeau at this point is seen as someone who can have a global role and can be an effective mediator,” Mr. Cotler said.
Mr. Lopez’s wife Lilian Tintori, who recently met with Mr. Trudeau in Ottawa to discuss the crisis in Venezuela, noted that the Vatican has already attempted to facilitate arbitration, without success.
“In an ideal situation I would think this is a great idea, but the truth is that you need two parties to make things happen, and the government of Maduro has shown very little will to proceed forward with any serious dialogue,” Ms. Tintori said in an e-mail.
But there might be a role for Canada in a mediation effort that does not include Venezuela.
The Caracas-based diplomat noted that there is a precedent for the creation of a regional process to address Venezuela’s crisis even without the Maduro government being involved. In the early 1980s, the foreign ministers of Venezuela, Mexico, Panama and Colombia set up what became known as the Contadora Group to address the civil wars in Central America, which threatened to destabilize the region. The Central American governments initially refused to participate, but the Contadora Group ultimately played a key role in ending those wars.
Foreign Affairs Minister Chrystia Freeland’s office said that Canada is prepared to play a role in solving the Venezuelan crisis, but did not get into specifics. Ms. Freeland participated in an Organization of American States (OAS) meeting on Venezuela in Washington in May and will attend the organization’s general assembly next week in Cancun, Mexico, where the Venezuela situation will be an urgent issue.
The diplomat said that when Mr. Trudeau was elected, the Maduro government thought it might find new sympathy in Ottawa because of the Prime Minister’s left-of-centre politics and his father Pierre Elliott Trudeau’s personal relationship with the late Cuban leader Fidel Castro. Mr. Castro was a major influence on Hugo Chavez, the architect of Venezuela’s shift to socialism and, the opposition argues, of the current crisis (Havana continues to have leverage on events in Venezuela). But two years into Mr. Trudeau’s tenure as Prime Minister, Venezuela understands that Canada views the situation in the country through a human rights and democracy lens, he said.
Following Mr. Trudeau’s meeting with Ms. Tintori in Ottawa last month, the Prime Minister called on the Venezuelan government to “restore the constitutional order, including the release of all political prisoners and to set an electoral calendar without delay.” He also stressed the need to respect democracy and human rights, including through a resolution cosponsored by Canada at the OAS in April.

INTERNATIONAL TRADE

StatCan. 2017-06-19. Canada's merchandise trade with the United States by state

The value of Canada's total merchandise trade (exports plus imports) with the United States on a customs basis reached $673 billion in 2016, accounting for 64.0% of Canada's total merchandise trade with the world. This was down slightly from 2015 when a record $688 billion was traded between the two countries.

Most of the data used in this paper are drawn from a new CANSIM table (228-0080), which provides monthly data on Canada's total merchandise imports and exports with the United States and also by US state and Canadian province. The data are available at the Harmonized System section level dating back to January 1990.

From 1990 to 2016, Canada's total trade with the United States more than tripled. The most rapid growth occurred from 1992 to 1995, with exports to the United States increasing by 65.3% and imports rising by 56.2%. This expansion coincided with the signing of the North American Free Trade Agreement in 1992 and its implementation in 1994.

Canada's exports to the United States totalled $394 billion in 2016 while imports were valued at $278 billion, accounting for 76.3% of Canada's total exports and 52.2% of total imports.

Trade patterns with the United States on a regional basis highlight the integration of industries between the two countries. Proximity, transport infrastructure and government policies have all contributed to these interdependencies. In 2016, 14 of Canada's top 20 trading partners were US states. The states which posted the largest shares of total trade were Michigan, Illinois, California, New York and Texas. In fact, Michigan has been Canada's top trading partner among US states every year since 1990.

Chart 1   Chart 1: Canada's merchandise trade with the United States
Canada's merchandise trade with the United States



The auto industry is the driver of trade between Canada and Michigan

Michigan is the principal destination and origin of Canada's traded commodities with the United States. In 2016, exports to Michigan totalled $66 billion, representing 16.8% of all exports to the United States. More than half of these exports consisted of motor vehicles.

Imports from Michigan accounted for $29 billion or 10.4% of Canada's total imports from the United States in 2016. More than half of these imports were motor vehicles or motor vehicle parts. The strong integration of the auto industries between Michigan and Ontario, and the presence of the largest auto makers and distribution centres in the United States make Michigan Canada's largest partner for both imports and exports with the United States. Compared with international trade figures, Michigan would be Canada's second-largest trading partner ahead of China.

Another key state in terms of the automobile sector is Ohio. The auto industries of Ohio and Ontario are also well integrated, contributing to $39 billion worth of merchandise trade between the two in 2016. Ohio was Canada's second most important import source by state, accounting for $23 billion or 8.3% of all imports from the United States. Ohio was also the destination for $16 billion or 4.1% of Canada's exports to the United States, ranking it as the seventh-largest export state.

Overall in 2016, motor vehicles and parts accounted for more than one-fifth of all traded commodities between Canada and the United States.

Map 1   Thumbnail for map 1: Canada's total merchandise trade with the United States, 2016
Canada's total merchandise trade with the United States, 2016



Illinois was the second-largest trading partner in terms of total trade and the third-largest destination for Canadian exports to the United States in 2016, accounting for $36 billion or 9.2% of Canada's total US exports. The main commodity exported to Illinois in 2016 was crude oil, accounting for over half of Canada's total exports to the state. Illinois is an important destination for bituminous crude oil from Western Canada as it is home to many refineries that are equipped to process heavy crude oil.

With the significant pipeline interconnectivity between Western Canada and Illinois, Canadian bituminous crude oil production is largely driven by exports rather than domestic demand. Exports of crude oil to Illinois peaked at $36 billion in 2014, but have fallen somewhat since the decline in oil prices.

Illinois is also a key import source of merchandise for Canada, ranking third with 6.6% of Canada's total imports from the United States. Diluents for crude bitumen were one of the main commodities imported, accounting for 16.7% of Canada's total imports from Illinois in 2016. In order to improve flow through pipelines, bituminous crude oil from Western Canada must first be diluted. Canada's exports of crude oil to Illinois mostly consist of diluted bitumen. Once the diluted bitumen reaches the Illinois refineries, the diluent is separated from the bitumen and returned to Canada to be used again.

California ranks second as an export destination

Canada's exports to California were valued at $38 billion in 2016, representing 9.7% of Canada's total exports to the United States. Almost two-thirds of these exports consisted of motor vehicles, which reached a record $24 billion in 2016. Large auto distribution centres in California are behind these strong exports. Many motor vehicles manufactured in Canada and destined for the US market transit through distribution centres in California before entering the US retail market.

Imports from California ($14 billion) are also significant for Canada, ranking seventh in terms of Canada's total imports from the United States. Fruits and vegetables are the dominant commodities entering Canada from California, accounting for 22.4% of imports from the state.

Exports of gold to New York

New York is Canada's fourth-largest trading partner among the US states. Exports to New York were worth $27 billion in 2016 or 6.8% of total US exports. Unwrought gold was the top commodity exported. New York City is one of the largest financial centres in the world, and as a result Canada's exports of gold to New York State primarily represent asset transfers within the banking industry.

Courier shipments contributed the most to Canada's imports from New York, accounting for 41.4% of the $18 billion imported in 2016. Since 2000, Canada's imports within this category from New York have almost tripled, supported by the growing popularity of e-commerce.

Crude oil trade with Texas

Texas is also important for Canada's trade activity with the United States. Canada's exports to Texas totalled $22 billion in 2016 and imports from Texas amounted to $18 billion. Crude oil is one of the most traded commodities with Texas for both exports and imports. In North America, Texas has the largest number of refineries equipped to process the heavy crude oil that is produced in Western Canada. As a result, the state is a natural market for many Canadian heavy oil exporters.

Refineries in Eastern Canada are equipped to process light crude oil, and as such, they have historically relied upon imported crude oil from the North Sea or the Middle East. With the discovery of major shale oil fields in Texas, such as the Eagle Ford formation, the state became one of the main sources of light crude oil for these Canadian refineries. Canadian imports of crude oil from Texas rose from $318 million in 2012 to peak at $7.3 billion in 2014. Crude oil imports from Texas then fell back to $1.6 billion in 2016, due in part to lower oil prices.

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/170619/dq170619b-eng.pdf

The Globe and Mail. 19 Jun 2017. Trade tensions flare over steel used in pipelines
GREG KEENAN, STEEL INDUSTRY REPORTER

Steel used in pipelines is emerging as the next skirmish in the trade battle between Canada and the United States, joining softwood lumber, dairy products and Bombardier Inc. single-aisle commercial jets in the sights of U.S. companies and industries.
The American Line Pipe Producers Association is urging the U.S. Commerce Department to include steel pipe produced by Evraz North America PLC in Regina in any decision that blocks or restricts steel imports that threaten U.S. national security.
The U.S. group says U.S. line pipe producers are considering filing anti-dumping and countervailing duty cases against Russian-controlled Evraz because the Canadian mill won a contract to supply pipe for the Midship Pipeline that will carry natural gas 318 kilometres from the middle of Oklahoma to that state’s border with Texas.
That complaint comes amid higher U.S. tariffs on softwood lumber, President Donald Trump’s denunciation of Canada’s dairy industry and the accusation by Boeing Co. that Bombardier is selling its C Series planes in the United States with the backing of illegal government subsidies.
At the same time, the Commerce Department is about to rule on whether imports of foreign steel threaten national security under section 232 of the 1962 Trade Expansion Act. Steel producers in Canada have asked for an exemption from any ruling.
On top of those specific issues is the future of the North American free-trade agreement after the United States officially notified its two partners that it wants to renegotiate the deal.
U.S. makers of steel pipe are operating at 30 per cent of capacity, Tim Brightbill, a lawyer for the association said from Washington.
Production is “at such low levels that it does threaten the ability of the U.S. industry to continue for the long term,” Mr. Brightbill said.
He pointed the finger at Evraz, saying it’s operating from a protected market at home because it was part of a group of steel companies that convinced Ottawa to slap duties on Chinese steel pipe last year and the Canada Border Services Agency earlier this month to initiate an investigation of South Korean pipe. Evraz won a verbal exemption from Mr. Trump that should allow its steel to be used on the Keystone XL pipeline.
Steel pipe is vital for critical infrastructure products and is also used in munitions, so if it’s not available domestically it’s a national-security issue, John Stupp, chief executive officer of American Line Pipe Producers Association member Stupp Corp. of St. Louis, told a congressional committee hearing on the issue.
Evraz North America spokesman Christian Messmacher said the steel maker has an efficiency and quality advantage as the only North American producer of large pipe that uses its own steel.
A $220-million (U.S.) upgrade to its Regina mill should further improve quality and efficiency, Mr. Messmacher said in an e-mail.
He noted that exports of large-diameter pipe from Turkey, South Korea, Germany and Greece exceeded those from Canada in 2016.
Veteran Canadian trade lawyer Larry Herman said he expects U.S. Commerce Secretary Wilbur Ross to exempt Canadian steel from any action the department takes.
“It’s critical to separate the usual litany of U.S. trade complaints from national security issues,” Mr. Herman said. “Just because an American industry has concerns about import competition, that doesn’t translate into a national security issue.”

StatCan. 2017-06-19. Exports of grains by final destination, April 2017

Data on exports of grains by final destination are now available for April.

Data on the shipment of nine types of grain are available by month, as well as by region and country of destination.

DOCUMENT: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=0010015&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=

NAFTA

The Globe and Mail. 19 Jun 2017. Ottawa’s trade policy must focus sharply on NAFTA, and also far beyond. WTO members may cynically adopt protectionist measures in direct contravention of treaty obligations, knowing full well that it will be years before a final WTO ruling.
LAWRENCE L. HERMAN

Former Canadian diplomat, practises international trade law and is a Senior Fellow of the C.D. Howe Institute in Toronto.
Foreign Affairs Minister Chrystia Freeland’s House of Commons speech last week signalled a new direction in Canadian foreign policy. In doing so, the Canadian government has to be sharply focused on dealing with Washington, navigating Trump’s protectionist view of the world and the impending NAFTA negotiations.
Those negotiations will be challenging, once the U.S. Congress clears the administration’s fast-track approval and the Trump team presents Canada and Mexico with its demands, likely in August.
Unlike the 1980s and 1990s when the United States had strategic interests in showing the world that it could reach accommodation with its North American partners, this time we have an “America First” president with no outward vision and no interest in cementing trade and commercial alliances, unless and only unless the United States is the clear winner.
Although navigating NAFTA has to be the Trudeau government’s trade priority, there are other things that need to figure into Canada’s sea chart. One is clearly getting the Canada-EU trade agreement up and running.
The other is the World Trade Organization in Geneva, not so much in its negotiating agenda, which is bogged down, but in making sure that its dispute settlement regime doesn’t collapse under its own weight. This is vitally important because Canada has turned to the WTO adjudication system in the past and will likely do so again in challenging U.S. trade actions in the long-running softwood lumber dispute and in the investigation of alleged subsidies for Bombardier’s C series aircraft.
There are major problems with that system that need immediate attention, according to the head of the WTO appellate body (which hears appeals from panels). In a recent speech, Ujal Singh Bhatia said the system is reaching the breaking point, with cases becoming increasingly complex and with more and more appeals from WTO panel decisions, leading to longer delays in achieving final outcomes.
Even after all this, getting member states to abide by these decisions is putting additional strains on the system, calling into question the integrity of the entire WTO dispute settlement process.
Most worrying – and for Canada especially – is that WTO members may cynically adopt protectionist measures in direct contravention of treaty obligations, knowing full well that it will be years before a final WTO ruling and before they face potential retaliation by the winning side.
In the meantime, the offending measure stays on the books and imports are thwarted.
Think of Mr. Trump and his threat of surcharges as border tax adjustments or unilateral import restrictions under the guise of national security. Think of U.S. duties on Canadian softwood lumber or Bombardier aircraft, where a WTO fight brought by Canada could get bogged down in years of litigation while Canadian exports suffer.
It will take prodigious political will among like-minded governments to reform the WTO system to resolve trade disputes faster and more effectively, weeding out inefficiencies and delays. Canada and the United States have a direct interest in that exercise. As with NAFTA, this should be at the top of Canada’s trade policy agenda.
Now let’s look west, across the other ocean to the Trans-Pacific Trade Agreement. All participants in the TPP exercise were lured to the table and convinced to sign on because of preferential access to the U.S. market.
With Mr. Trump abandoning the TPP agreement, many, myself included, thought that resurrecting the deal among the remaining 11 countries was a dream.
However, the Canada West Foundation, which is becoming more active on international trade matters, just issued a report making the economic case for a TPP agreement without the United States.
Admitting that the overall GDP gains for Canada in the absence of U.S. participation could be modest, the report nonetheless points out that certain sectors of the Canadian economy – agrifood for example – will benefit under an 11-country TPP deal, mainly from enhanced access to the Japanese market.
There are imponderables in trying to quantify the benefits of a trans-Pacific agreement without the United States, as the Canada West report admits. It is impossible to calculate the effect on services and intellectual property, for example. The critical player without the Americans, of course, will be Japan.
But the interesting point is that, even without the United States, and assuming Japan stays, economic benefits could accrue to most of the remaining TPP countries. These arguments, in league with inveterate TPP boosters like Mexico, New Zealand and Chile, provide an impetus for Canada keeping the flame alive.
These broader strategic elements on the multilateral and regional level fit into Ms. Freeland’s statement about Canada and the world. While every Canadian government faces the singularly important task of managing relations with the United States, given the inwardlooking America First turn the Trump administration is taking, there are solid reasons for Canadian trade policy to remain actively engaged across both the Atlantic and the Pacific.

CANADA - US

Department of Finance Canada. June 18, 2017. Finance Ministers Meet to Build on Their Productive Partnership

Ottawa, Ontario - Canada's Finance Ministers have a proven record of working together in a spirit of collaboration to deliver results that benefit the middle class and those working hard to join it.

Finance Ministers will gather in Ottawa on June 18-19, 2017 to build on their productive partnership. As the Canadian economy gathers steam, the semi-annual meeting will focus on working collaboratively to support growth that benefits everyone.

To this end, the Ministers are expected to discuss:

• Canada's relationship with its most important trading partner, the United States.
• Improving the availability of beneficial ownership information to safeguard against money laundering, terrorist financing, tax evasion and tax avoidance.
• Engaging the provinces and territories in the development of principles for a coordinated approach to the taxation of cannabis.
• Additional agenda items will include a presentation by Bank of Canada Governor Stephen Poloz, and the 2016-2018 Canada Pension Plan (CPP) Triennial Review, which will examine the design of CPP supplementary benefits, such as child rearing and disability drop-out provisions.

Quote

"Canada's Finance Ministers can be proud of what they have accomplished for Canadians in recent years. We have enhanced the CPP and reached agreements to bolster our public health care system. The Canadian economy is growing, having created more than 316,000 jobs in the last 12 months, and people are more confident about their future. We know that we have a lot of work to do for Canadians, and I would like to thank my provincial and territorial counterparts for their vision, effort and commitment to this partnership.

"I look forward to working with my provincial and territorial colleagues to begin a dialogue on the important issue of taxation of cannabis. Our Government's goals are clear: we want to keep criminal elements out, and we want to keep cannabis out of the hands of children. This will mean keeping taxes low, and working together on an ongoing basis to ensure a coordinated approach."

- Bill Morneau, Minister of Finance

Quick Facts

• The CPP enhancement that Canada's Finance Ministers agreed upon in June 2016 is now fully legislated and in force. It will increase the maximum CPP retirement benefit by about 50 per cent.
• Health funding agreements have been reached with 12 provinces and territories for an additional $11 billion in federal funding over 10 years to support better home care and mental health initiatives. This investment will make Canada's health care system more responsive to the needs and expectations of all Canadians, and begin to close long-standing gaps in the availability of care.

FINANCE

Department of Finance Canada. June 16, 2017. Government of Canada Pre-Publishes Regulations to Promote a Sound and Resilient Financial System

Ottawa, Ontario – The Government is committed to building confidence in Canada's strong and well-functioning financial sector, which is vital to an economy that works for the middle class and those working hard to join it. For this reason, the Government is pre-publishing regulations to implement the Bank Recapitalization (Bail-in) Regime and seeking comment from all interested parties.

The regulations pre-published today in the Canada Gazette set out key features of the regime, including which types of debt instruments will be subject to the regulations. Canadians' deposits (including chequing accounts, savings accounts and term deposits such as Guaranteed Investment Certificates) are not subject to losses under the regime.

The Government is seeking comments from all interested parties until July 17, 2017.

The Globe and Mail. 19 Jun 2017. Key data eyed as BoC tilts to raising interest rate
JOHN HEINZL

Let the rate-hike guessing game begin.
Now that the Bank of Canada has signalled that it’s preparing to raise its benchmark interest rate for the first time in seven years, economists will be watching the flow of data – including reports on inflation and retail sales this week – for clues about when the central bank will finally pull the trigger.
Last week, Bank of Canada senior deputy governor Carolyn Wilkins said the drag from lower oil prices is now “largely behind us” and that growth is broadening across regions and economic sectors. In light of the economy’s strength, she said the bank will be “assessing whether all of the considerable monetary policy stimulus presently in place is still required.”
Prior to Ms. Wilkins’s speech, the market wasn’t expecting the bank to hike its key overnight rate – currently 0.5 per cent – until 2018 at the earliest. But with her bullish comments, the outlook has shifted dramatically.
“The market is now pricing in at least one rate hike by the end of this year and another by the end of next year,” Michael Gregory, deputy chief economist with BMO Nesbitt Burns, said in a note.

The Globe and Mail. 19 Jun 2017. Lookahead: Inflation reading key to Bank of Canada’s timing
Andrew Grantham Economist with CIBC World Markets Some improvement in core measures will help solidify the new market expectation for a [Bank of Canada] hike before the end of the year.

BMO doesn’t expect an increase until early in 2018, but Mr. Gregory said there is a possibility that the central bank could move in October, or even as early as July.
The timing will depend to a great extent on what the economic data say.
On Friday, Statistics Canada releases the consumer price index for May, providing the latest read on inflation – a key factor the bank considers when setting monetary policy.
“While headline inflation could decelerate a tick, some improvement in core measures will help solidify the new market expectation for a [Bank of Canada] hike before the end of the year,” Andrew Grantham, economist with CIBC World Markets, said in a note.
CIBC expects the headline CPI to post a year-over-year increase of 1.5 per cent in May, down slightly from 1.6 per cent in April, reflecting lower gasoline prices. But it said inflation could pick up in the second half of the year on higher food prices and the general strength of the economy.
Food could also figure prominently in this week’s CPI report.
Food “tends to be strong in May, and could nearly end the deflation in that subindex that we’ve seen for the past seven months. Also watch for a big gain in home replacement costs after the new home price index surged in the prior month,” said BMO senior economist Benjamin Reitzes.
Even though the various core CPI measures tracked by the central bank have remained tame, “given the [Bank of Canada’s] recent change of tone, further softness will likely be overlooked, while a surprise strong print will increase the chatter around the potential for a July hike,” Mr. Reitzes said.
Still, some economists are skeptical that this week’s data will support the case for a rate hike.
“The ink is barely dry on the Bank of Canada’s more hawkish bias shift and, lo and behold, [this] week’s data could well be of the somewhat more dovish variety,” Derek Holt, head of capital markets economics at Bank of Nova Scotia, said in a note. ScotiaBank sees inflation remaining tame – it forecasts that the CPI will rise just 1.3 per cent year over year in May – and also expects Thursday’s report on April retail sales to be soft.
Reflecting lower volumes of new car and trucks sold during the month, Scotiabank predicts that retail sales will be flat in April compared with March and up just 0.2 per cent excluding automobiles. BMO and CIBC both see headline retail sales rising 0.3 per cent.
In the United States – where the Federal Reserve last week raised its benchmark lending rate by a quarter-point – it’s a busy week for Fed speakers, including Fed vice-chair Stanley Fischer, who will give a speech from Amsterdam early Tuesday morning.
“Particularly interesting will be whether the comments … echo the lack of concern [Fed chair] Janet Yellen appears to have regarding the deceleration in core inflation,” CIBC’s Mr. Grantham said.
The U.S. economic data calendar is relatively quiet, with existing home sales and new home sales, both for May, to be released on Wednesday and Friday, respectively.
With the end of the second quarter less than two weeks away, investors will be watching for any changes in earnings guidance as companies prepare to report their quarterly numbers.
According to FactSet Research, the estimated earnings growth rate for the S&P 500 currently stands at 6.5 per cent.
The biggest contributor to that increase might come as a surprise: energy.
Energy’s strength reflects two factors: easy comparisons to last year’s depressed earnings, and a slight year-over-year increase in the price of oil. As FactSet pointed out, even though oil prices have fallen recently, the average price per barrel of about $49 (U.S.) in the second quarter to date is still higher than the average price of about $49.60 in the second quarter of 2016.
Cost-cutting has also helped energy companies’ bottom lines. On a dollar basis, the energy sector is expected to report earnings of $9.6-billion in the second quarter, up from $1.9billion a year earlier, FactSet said.
Excluding energy, the S&P 500’s estimated earnings growth rate would fall to 3.6 per cent.
On the earnings calendar, FedEx Corp. and Lennar Corp. are scheduled to report on Tuesday, Oracle Corp on Wednesday and BlackBerry Ltd. on Friday.

AEROSPACE INDUSTRY

Canada Economic Development for Quebec Regions (CED). June 19, 2017. Funding for six Quebec SMEs linked to the aerospace industry

Montréal, Quebec – More than 90 new manufacturing jobs linked to the aerospace industry could be created in Quebec thanks to the Government of Canada’s $2.2 million investment in the form of repayable contributions. The funding will help the Canadian aerospace industry continue to provide high-quality jobs for all Canadians.

The Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development and Minister responsible for CED, announced the investment while visiting the International Paris Air Show (SIAE) Paris-Le Bourget, which will welcome over 420 Canadians this year, representing more than 130 businesses.

The funding will help the six following enterprises acquire leading-edge technology to develop and commercialize innovative products that will contribute to making Canada a global leader in the aerospace industry:

• Libellule Monde Inc. designs and manufactures custom products for aircraft surfaces. The $600,000 in financial assistance will help the business commercialize its innovative products on the international market and purchase technological equipment to support its growth.
• APN Inc. manufactures high-precision parts for various industries, including the aerospace industry. The $500,000 investment will help the enterprise purchase new production equipment that will improve the plant’s productivity and environmental performance.
• DCM Group Inc. provides turnkey solutions for aerostructure manufacturing and repair, maintenance tooling and ground equipment for aircraft. The $400,000 contribution will help the business continue to offer quality custom products at competitive prices.
• BHS Composites Inc. develops innovative custom composite parts that meet very specific requirements. The $325,000 investment for equipment purchases will help the business expand in Canada and the United States.
• Rapid Precision Industries Ltd. Specializes in the machining and manufacturing of custom high-precision metal parts. The $225,000 investment will help the business diversify the range of products that meet its clients’ highest expectations.
• TRAF Industrial Products Inc. provides specialized high-precision machining services, along with the design, manufacturing and assembly of components for the aerospace industry. The $150,000 in financial assistance will help the business diversify its clientele and develop new markets through the purchase of state-of-the-art equipment.

Quotes

“Canada’s aerospace industry is defined by its global leadership in the development of new technologies, which depend on the talents of the highly skilled men and women who work in this sector. The innovations and business opportunities that are created as a result support well-paying, middle-class jobs across the country. And they allow Canadian companies to grow into globally competitive successes.”

The Honourable Navdeep Bains, Minister responsible for CED

Quick Facts

• In 2016, the Canadian aerospace industry maintained its position as global leader, having been responsible for over 60% of aerospace product exports linked to the supply chain.
• This industry was the number one R&D player across all Canadian manufacturing industries, generating close to 30% of total investments in R&D in the Canadian manufacturing sector in 2016.
• Still in 2016, the aerospace industry contributed $28 billion in GDP to the Canadian economy and 208,000 jobs.
• The Government of Canada has launched the Innovation and Skills Plan , a multi-year strategy intended to create good-paying jobs for the middle class and those working hard to join it.
• One of the main programs supporting innovation and diversification of Quebec’s economy is CED’s Quebec Economic Development Program. 
• CED is one of six regional development agencies under the responsibility of the Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development.

AVIATION

The Globe and Mail. 19 Jun 2017. Lockheed finalizes record F-35 deal with 11 countries. Maryland-based producer prepares to ink $37-billion sale to Israel, Britain, U.S. and others for 440 fighter jets through to 2020
MIKE STONE, Reuters

Lockheed Martin Corp. is in the final stages of negotiating a deal worth more than $37-billion (U.S.) to sell a record 440 F-35 fighter jets to a group of 11 countries including the United States, two people familiar with the talks said.
This would be the biggest deal yet for the stealthy F-35 jet, set to make its Paris Airshow debut this week. The sale represents a major shift in sales practices from annual purchases to more economic multiyear deals that lower the cost of each jet.
The pricing of the jets was still not final, although the average price of the 440 jets was expected to be $85-million, the people said on condition of anonymity because they were not authorized to discuss the negotiations publicly.
The multiyear deal for the fighters will consist of three tranches over fiscal years 2018-20.
A Lockheed representative said the U.S. company does not discuss negotiations on contracts and said any deal involving a “block buy” would be announced by the U.S. government.
A representative for the customers including the United States did not immediately respond to a request for comment on Sunday.
Last week, representatives from 11 F-35 customer countries met in Baltimore to discuss terms and toured a Northrop Grumman Corp. facility in Maryland that provides equipment for the jet. Those countries included Australia, Denmark, Israel, Italy, Japan, the Netherlands, Norway, Turkey, South Korea, Britain and the United States.
The memorandum of understanding being negotiated between Lockheed and the customers aims to procure 135 or more jets in fiscal year 2018 for delivery in 2020 for about $88-million a jet, the people said. In the subsequent fiscal years, 2019 and 2020, procurement would increase to 150 or more jets a year.
The average price in 2019 could be $85-million for the F-35 A variant and could drop below $80-million in 2020, the people said. That would mark the lowest price ever paid for an F-35, making this deal an important step in reducing the overall cost of each jet.
The F-35 has been widely criticized for being too expensive, including by U.S. President Donald Trump and other U.S. officials who have criticized the Pentagon’s most expensive program for delays and cost overruns.
Recently, a quarter of the operating F-35 fleet was grounded until further notice because of irregularities in the pilots’ oxygen supplies.
The memorandum of understanding will guarantee contracts will take place in each successive future year. This allows the manufacturing group led by Lockheed to take advantage of greater economies of scale, reducing the cost of each jet. They have been working to reduce the cost of the jets through streamlining the supply chain and purchasing materials in bulk.
Recently revised estimates indicate the U.S. Defence Department expects to spend $379-billion, down from $391billion, to develop and buy 2,443 of the supersonic warplanes through 2039, one of the people said.
“This is part of an ongoing process. If it gets done, it would be a plus for Lockheed, allowing for better long-term production management,” said Robert Stallard, an analyst at Vertical Research.
The F-35 comes in three configurations, the A-model for the U.S. Air Force and U.S. allies; the B-model, which can handle short take-offs and vertical landings for the Marine Corps and the British navy; and the carrier-variant F-35C jets.
In February, the Pentagon agreed to a deal for the 10th batch of the fighter aircraft and agreed to pay below $95-million a jet for the first time, compared with $102-million in the previous purchase which was the lowest price up until that point.
Around that time the Pentagon said the price of a jet could fall 16 per cent to around $80million in future purchases.
The F-35 business accounts for about 37 per cent of Lockheed’s total revenue. During the first quarter, Lockheed’s revenue from its aeronautics business increased 8 per cent to $4.1-billion, led by higher sales of the F-35.
Lockheed executives have estimated that a multiyear deal will save about $2-billion for the countries that choose to participate in the multiyear purchase.
Lockheed, the prime contractor, and its partners, including Northrop Grumman, United Technologies Corp.’s Pratt & Whitney and BAE Systems PLC, have been working on building a more cost-effective supply chain to fuel the production line in Fort Worth, Tex.

BLOOMBERG. 2017 M06 19. Bombardier C Series Buoyed by Qatar Interest, GE's Canada Deal
by Christopher Jasper  and Benjamin D Katz

• Intensity of order talks is increasing, executive Cromer says
• AirBaltic studies follow-on order for CS100 as jet outperforms
• Bombardier Sees More C Series Orders by End of Year

Bombardier Inc.’s marquee C Series jet, which hasn’t won a major new contract in more than a year, got a boost from interest at Qatar Airways and Air Baltic Corp. and from a new jet-leasing venture between the planemaker’s largest outside shareholder and General Electric Co.

The single-aisle model could be suited to an Indian operation that Qatar Air has won permission to establish, the Persian Gulf carrier’s chief executive officer, Akbar Al Baker, said Monday at the Paris Air Show. AirBaltic said the first jets from an order for 20 CS300s have outperformed fuel-burn targets and confirmed it is progressing with an evaluation of the smaller CS100 variant.

“We’ve had several conversations with Akbar and he is watching the program,” Fred Cromer, president of Bombardier’s commercial aircraft unit, said in an interview at the expo. “His interest level increased when he was able to see the aircraft for the first time in Paris a couple of years ago.”

Qatar Air said in March that it aims to set up a short-haul airline in India with a fleet of 100 narrow-body planes as its renews a push to tap one of the world’s fastest-growing travel markets. That project remains on track, with the Doha-based company gaining the right to establish the unit when it is ready, Al Baker said.

The airline has come close to buying the C Series before, though it shelved those plans at the 2011 Paris Air Show.

Bombardier climbed 3.6 percent to C$2.56 at 1:55 p.m. in Toronto. The shares gained 14 percent this year through June 16 while Canada’s benchmark S&P/TSX Composite Index was little changed.

Positive Move

GE Capital Aviation Services, one of the world’s largest jet-leasing companies, said Monday that it would create a $2 billion financing platform with Caisse de Depot et Placement du Quebec, Canada’s second-largest pension-fund manager, to capitalize on global demand for commercial aircraft.

The move involving the Bombardier investor “may be be a positive” for the C Series, Cromer said, while declining to speculate further about the implications.

Bombardier is confident of winning more C Series orders this year. The company has delivered 14 of the aircraft to date. Certification to take off and land at London City airport -- which has a short runway unable to handle most jetliners -- has piqued the interest of carriers, while Riga, Latvia-based AirBaltic has reported strong performance data.

“I have CEOs coming up to me saying they’re hearing the aircraft is doing extremely well,” Cromer said. “The number and intensity of the conversations is increasing.” There was similar interest among airline executives at the International Air Transport Association annual meeting in Mexico this month, he said.

Embraer Contest

AirBaltic has improved fuel burn 21 percent from the five C Series planes it has received, compared with the Boeing Co. 737-300s that the model is replacing, the airline’s CEO, Martin Gauss, said at the air show. That’s compared with the promised 19 percent boost. Passenger feedback has focused on lower noise levels, a brighter interior and bigger spaces for stowing baggage, he said.

The carrier needs 14 planes to replace a fleet of Bombardier Q400 turboprops and is evaluating the CS100 against Embraer SA’s E195-E2 jet, which is set to enter service in the first half of 2018. An order decision could come later this year with deliveries starting in 2021, Gauss said in an interview.

Bombardier is also hopeful that existing customers will convert options they have for the C Series into firm orders, Cromer said. Lufthansa holds 30 such positions, while Korean Air Lines Co. President Walter Cho is talking about exercising 20 options beyond the 10 jets on order even before taking the first aircraft later this year.

DAIRY

The Globe and Mail. 19 Jun 2017.  Countries pile on in attack of Canada’s dairy regime
BARRIE McKENNA

Every year, World Trade Organization members huddle in Geneva to review how countries are meeting their pledge to end farm export subsidies.
This year’s gathering quickly turned into finger-pointing at Canada’s dairy supply-management regime. Canadian officials faced a barrage of more than 80 questions about a new national milk pricing scheme, plus numerous inquiries about contentious cheese and butter policies, according to the WTO.
Predictably leading the charge were the United States and New Zealand. Both countries are major dairy exporters and have long griped about supply management, which tightly controls prices, production and imports of dairy, eggs and poultry in this country.
Joining the attack this time were the European Union, Mexico, Australia and Russia.
Whoa. What? Russia – architect of central economic planning in the Soviet era – is lecturing Canada about the evils of supply management?
That can’t be good.
That Russian President Vladimir Putin has found common cause with some of Canada’s closest trading partners is a measure of the powerful forces lining up against this country’s embattled dairy industry.
If you’re a Canadian dairy farmer, the list of complaints – and complainants – is growing distressingly long.
Supply management is expected to be a key target of the United States in the looming talks to renegotiate the North American free-trade agreement.
Meanwhile, the European Union is threatening to delay the planned July 1 implementation of its free-trade deal with Canada because of a dispute over how Ottawa plans to allocate increased imports of European cheese, the CBC reported last week. Some EU countries are worried Canadian dairy processors and farmers will manipulate cheese import quotas in a way that could deny then market access negotiated in the trade deal. Under the agreement, Europe won the right to export an additional 18,000 tonnes of duty-free cheese – an amount equal to roughly four per cent of Canada’s cheese market.
An even greater threat to supply management comes from the United States.
The U.S. dairy industry wants the Trump administration to push for the elimination of Canadian tariffs of 200 to 300 per cent on dairy imports as well as an end to steep new discounts on milk sold to Canadian dairies, according to a submission filed last week by the National Milk Producers Federation and the U.S. Dairy Export Council.
The U.S. industry apparently wants a lot more than Canada offered in the stalled Trans-Pacific Partnership trade deal.
“We see NAFTA modernization discussions as the last opportunity to … address unfinished business in order to truly open up the North American market,” the trade groups said in their brief to U.S. Trade Representative Robert Lighthizer ahead of the NAFTA renegotiation.
High on the list of unfinished business are Canadian tariffs of 300 per cent on butter and 246 per cent on cheese. The groups want Washington to demand “very specific tariff reduction formulas,” ending eventually with complete elimination of duties.
Removing high tariffs would leave Canadian farmers unable to control how much milk they produce or to sustain high domestic prices – essentially spelling the end of supply management.
Another key U.S. industry demand is unwinding a new pricing scheme in Canada that gives dairies access to heavily discounted milk ingredients for making cheese and yogurt. Canadian farmers pushed for the change to give dairies an incentive to buy their milk ingredients in Canada, rather than importing ultrafiltered milk from the United States. Ultrafiltered milk – essentially concentrated milk protein – is a rarity among dairy products because it enters Canada duty-free from the United States. Before this year’s pricing change, Canadian wholesale milk prices were sometimes double those in the United States.
“Shipping to Canada can be a game of roulette for U.S. dairy companies given that they never know when Canada will bow to political pressure and intentionally shift the rules,” the groups complained in their submission.
The Trudeau government has insisted that it will defend dairy farmers and supply management in the NAFTA talks. And it will no doubt push the United States to phase out its own milk subsidies, or push for gains in other areas in return for anything it cedes on dairy.
Ottawa has given no indication that it would bend.
But it’s not a good omen when Russia joins the ranks of the selfappointed do-gooders of the global dairy trade.

SOFTWOOD LUMBER

The Globe and Mail. 19 Jun 2017. Softwood lumber producers face added tariffs from U.S. Industry braces for anti-dumping duty of 10 per cent
BRENT JANG

The United States is expected this week to announce an antidumping duty of 10 per cent against Canadian lumber producers for allegedly undervaluing softwood, a move that would raise the overall punitive rate to nearly 30 per cent.
A lumber yard in Montreal in April. Canada’s forestry industry is concerned a proposed anti-dumping duty will be a case of the Trump administration double-dipping.
In April, the U.S. Department of Commerce imposed a countervailing duty of 19.88 per cent that hit most Canadian lumber producers.
The countervailing tariff is targeted at what the United States deems to be unfair subsidies in Canada, while the anti-dumping duty is designed to penalize Canadian producers for allegedly selling softwood at below market value.
The Canadian forestry industry is worried that the announcement scheduled for Friday will be largely a case of the Trump administration double-dipping through collecting extra money for alleged bad behaviour already factored into the initial duty disclosed in April.
A combined tariff averaging nearly 30 per cent will be a hefty amount, especially for smaller firms in Canada.
Earlier this month, Ottawa announced an $867-million aid package for Canada’s forestry sector in an effort to help ease the financial pain from duties.
A group led by the U.S. Lumber Coalition, also known as the Petitioner, is warning the Commerce Department about a “particular market situation” in Canada that stems from alleged “distortions” in the softwood industry.
“The Department should issue a memorandum accepting Petitioner’s particular market situation claim as timely and should reject arguments to the contrary,” according to a submission by the influential group called Coalition, which stands for Committee Overseeing Action for Lumber International Trade Investigations Or Negotiations.
The U.S. group is targeting four mandatory respondents from Canada for allegedly dumping lumber into the United States: Resolute Forest Products Inc. of Montreal and three B.C.-based producers – West Fraser Timber Co. Ltd., Canfor Corp. and Tolko Industries Ltd.
Coalition said market distortions in Canada are evident in subsidies for “bioenergy” or renewable-energy programs that consume lumber byproducts. “The Canadian federal and provincial governments have encouraged the development of energy from biomass, including wood chips from softwood lumber, as a new market for lumber byproducts,” Coalition said in a separate filing to the Commerce Department.

The Globe and Mail. 19 Jun 2017. Lumber: Experts expect 10% tax

The lobby group also alleges there are Canadian subsidies for electricity and log supplies. “The Department has sufficient time to make a finding regarding Petitioner’s particular market situation claim for the preliminary determination,” the lobby group said.The four mandatory respondents – Resolute, West Fraser, Canfor and Tolko – face paying individual anti-dumping rates. New Brunswick-based J.D. Irving Ltd., which is a voluntary respondent in the countervailing duty investigation, is not a respondent in the anti-dumping probe.
But Irving and the remaining producers will be subject to antidumping duties at a weighted average rate.
For the weighted average rate, RBC Dominion Securities Inc. analyst Paul Quinn and other industry experts are anticipating a preliminary anti-dumping duty of 10 per cent on Canadian lumber shipments south of the border.
The countervailing duties that took effect on April 28 were: Irving at 3.02 per cent, Resolute at 12.82 per cent, Tolko at 19.50 per cent, Canfor at 20.26 per cent and West Fraser at 24.12 per cent. The remaining Canadian lumber exporters are paying 19.88 per cent.
In the trade dispute dating back to the early 1980s, the United States complains that Canadian lumber is unfairly subsidized by provincial governments. That’s because most of the trees in Canada are on publicly owned land. By contrast in the United States, most timber is on private property and companies pay market rates to harvest it, Coalition argues.
The BC Lumber Trade Council is urging the Commerce Department to dismiss the U.S. lumber sector’s push for extra duties.
“Notwithstanding its more than 40 pages of narrative and over 1,400 pages of accompanying exhibits, Petitioner’s submission is noteworthy for failing to provide any actual evidence or data to support its allegation of a particular market situation,” the council said in its 77-page filing to U.S. Commerce Secretary Wilbur Ross. “Engaging further in a particular market situation analysis in these circumstances would be pointless and a waste of resources for both the Department and the parties involved.”
West Fraser, Canfor, Tolko and Resolute also voiced their objections in separate letters to Mr. Ross.
“Although Petitioner has included numerous allegations of claimed ‘distortions’ and ‘artificial inflations’ in lumber demand, Petitioner has utterly failed to provide substantial corroborating information to support these claims,” West Fraser said.

The Globe and Mail. 19 Jun 2017. The future of Canada’s forest industry hinges on innovation
DEREK NIGHBOR, CEO of the Forest Products Association of Canada

Not everyone thinks of innovation when they think of Canada’s forest products companies. But the federal government has fully recognized that the future of the forestry industry and its 230,000 workers depends on the success of its continuing commitment to innovation and sustainable development in every area of the forestry business.
The importance of this transformation was underscored by Natural Resources Minister Jim Carr in Ottawa’s response to the new round of U.S. tariffs against Canadian softwood-lumber imports. Earlier this month, Mr. Carr announced the federal government would provide $867million in funds to help the forestry industry in the wake of the unwarranted U.S. duties aimed at Canada.
In addition to critical support for forestry employees, the government earmarked a large portion of the new funding to support the sector’s wide-ranging, transformative commitment to overhaul its operations for long-term, sustainable growth. While Mr. Carr’s support package was primarily intended to assist softwood-lumber producers, funding for investments that will help all forestry products companies pursue modern, researchbased operations and new markets will be available across the sector.
The importance of this support cannot be overstated. Canada is steward to 10 per cent of the world’s forests, and by embracing strong environmental standards and committing to continuous improvement, Canada’s forestry sector is recognized around the world as an environmental leader.
The sector is investing in worldleading forest management practices, introducing new technologies in its mills and plants and focusing on growing global markets.
In this transformation, a wide range of new uses are being discovered for wood fibre – everything from clothing to car parts, from cosmetics to chemicals to advanced construction systems. For example, an 18-storey student residence built from wood recently went up at the University of British Columbia, making it one of the tallest wood buildings in the world. Canada’s pulp and paper mills have also reduced greenhouse gas emissions by 65 per cent in the past two decades.
And, as Canada’s third-largest industry and the lifeblood of some 200 rural and northern communities across the country, the forest products sector is fully aware of the stakes in its all-out strategy to forge a forward-looking, innovative production model.
Adjusting to changing world economic conditions and environmental developments is not easy. So the latest investments by the federal government represent a welcome and much-needed vote of confidence from Ottawa in forestry producers’ ability to fulfill their sector-wide commitment to innovation and sustainable development.
In addition to pursuing innovative production and new technologies, forestry companies see themselves as partners with the federal government – and indeed all Canadians – in the effort to address global warming. That’s why the Forest Products Association of Canada launched its 30 by 30 challenge to reduce 30 megatonnes of greenhouse gas emissions a year by 2030.
By implementing strong environmental standards and helping to build a green economy, forest products companies are committed to contributing to a sustainable commodities sector.
The federal government’s latest funding commitment is an acknowledgment of the key role the forest products industry plays in advancing innovation and the use of clean technologies. The much-valued support will help the sector remain competitive and continue to bolster Canada’s economy along with many thousands of high-value jobs across the country.

BLOOMBERG. U.S. Wants Fast Lumber Deal as Canada Says Much Work Remains
by Josh Wingrove

• Wilbur Ross wants softwood deal before Nafta talks, envoy says
• Canada’s Foreign Minister Freeland says deal isn’t imminent
• U.S. Decision on Canadian Lumber Duties Nears

Canada’s envoy to Washington says President Donald Trump’s administration is interested in a quick deal to end a softwood lumber dispute although Prime Minister Justin Trudeau’s government sees no imminent agreement.

Ambassador David MacNaughton said last week U.S. Commerce Secretary Wilbur Ross told him it would be good to get a softwood deal before renegotiation of the North American Free Trade Agreement, due to begin as early as August.

However, MacNaughton said a deal is “a long way away” with a second round of duties on Canadian lumber expected this month. Canada Foreign Minister Chrystia Freeland also said a new pact on softwood -- one of the most persistent trade spats between the U.S. and its second-largest trading partner -- isn’t imminent.

The dispute is raising the cost of lumber in the U.S., contributing to a more than 18 percent surge in wood prices from the end of January to mid-May, according to a Bloomberg Intelligence report. Additional U.S. duties are expected to further lift lumber prices as Canadian companies including West Fraser Timber Co. and Canfor Corp. offset the cost.

The U.S. is scheduled to decide on new anti-dumping penalties by the end of this month that may bring combined duties to more than 30 percent, according to RBC Capital Markets, after an initial round in April of as much as 24.1 percent. Canada announced an C$867 million ($655 million) funding package in June to cushion companies and workers. Final U.S. lumber duties are expected by January of 2018.

‘Some Hope’

“There is still a lot of work to be done,” Freeland told reporters Friday in a conference call from Miami. Canadian officials are bracing for a lengthy dispute and continue to both threaten legal action and say they would prefer a negotiated deal.

Ross is “rolling up his sleeves” and is engaged personally on the lumber file, MacNaughton told reporters in Ottawa last week. U.S. industry needs to approve any deal, a reality that complicates any preference by Ross for a quick pact.

“Everybody’s going to have to figure out whether there is a deal to be done there, but at least when you’ve got somebody who is personally taking the time, making the effort, it gives me some hope,” he told reporters. “So we’ll see.”

It was another trade deal -- the Trans Pacific Partnership -- that ultimately destroyed the chances of a lumber settlement under the administration of former president Barack Obama, MacNaughton said. Obama’s officials refused to risk delaying passage of the TPP, now effectively dead in its current form, by pressuring Congress on lumber as well.

MacNaughton called his talks with the Obama White House “particularly frustrating” on lumber -- despite what he called the “nice words and so-called bromance,” or close rapport between Obama and Trudeau.

“What I came to realize after several months is they actually had no interest in using any of their political capital to move that along,” he said. Obama wanted TPP instead, and that was the priority with Congress. “If they had to lean on any of them to get a softwood lumber deal, they just wouldn’t do it.”

‘Poison’ Risk

Former Canadian Prime Minister Brian Mulroney, who signed the Nafta accord and has acted as something of an adviser and intermediary to Trudeau on the U.S., said slow lumber talks could stall the upcoming Nafta process.

“I think both sides recognize that if we can, we must solve the softwood lumber case now, otherwise it runs the risks of poisoning the larger negotiations,” he said on CTV’s Question Period in an interview that aired Sunday.

Softwood remains a “notoriously difficult and complex file,” Freeland said. Canada argues American lumber producers can’t meet domestic demand, and Canadian lumber will need to fill the void. “The logic is in favor of a negotiated settlement,” she said.

MacNaughton said last week the length of overall Nafta talks will be determined in partly by the scope of changes being sought by the U.S., while Mulroney -- who has regularly applauded Trudeau’s approach so far -- expects lengthy talks. “It’s not going to be short and sweet. We should be ready not for a sprint but for a long distance run.’’

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LGCJ.: