CANADA ECONOMICS
WHOLESALE
Wholesale sales — Canada: $62.4 billion, July 2017
1.5% increase (monthly change)
Source(s): CANSIM table 081-0011.
Wholesale sales rose 1.5% to $62.4 billion in July, following a 0.6% decline in June. Sales were up in five of the seven subsectors, representing 86% of total wholesale sales. The building material and supplies and the food, beverage and tobacco subsectors contributed the most to the advance.
In volume terms, wholesale sales were up 2.1%.
Chart 1 Chart 1: Wholesale sales increase in July
Wholesale sales increase in July
Sales up in five of seven subsectors, led by the building material and supplies subsector
The building material and supplies subsector reported the largest gain in dollar terms in July, increasing 4.8% to $9.0 billion. Two of three industries within the subsector reported higher sales—led by the lumber, millwork, hardware and other building supplies industry (+9.6%)—which posted its fourth increase in five months.
Sales in the food, beverage and tobacco subsector rose 2.4% to $12.2 billion in July, following a 1.2% decline in June. All three industries in the subsector increased, led by the food industry—up 1.3% to $10.9 billion—mostly erasing the 1.4% decline in June.
Sales in the motor vehicle and parts subsector rose 1.4% to $11.6 billion on stronger sales in the motor vehicle industry (+1.5%). Imports of passenger cars and light trucks increased in July.
Sales in the miscellaneous subsector decreased 1.3% to $8.0 billion. Sales were down in four of the five industries in the subsector, with the recyclable material and chemical (except agricultural) and allied product industry contributing the most to the drop.
The farm product subsector declined for a second consecutive month, down 0.3% in July.
Sales increase in seven provinces, led by Alberta, British Columbia and Saskatchewan
Sales in Alberta rose for the 9th time in 10 months, up 4.3% to $6.9 billion in July. Six of seven subsectors posted increases, led by the machinery, equipment and supplies (+7.3%) and the food, beverage and tobacco (+5.2%) subsectors. Sales in the machinery, equipment and supplies subsector in Alberta rose for the third time in four months, growing 11.5% over the period.
Wholesale sales in British Columbia rose for the third consecutive month, up 3.4% to $6.6 billion in July on the strength of higher sales in the building material and supplies (+9.2%) and the food, beverage and tobacco (+5.1%) subsectors. The building material and supplies subsector reported a record high $1.8 billion in sales in July.
Sales in Saskatchewan rose 9.9% to $2.4 billion in July, with increases in six of the seven subsectors. The majority of the gain was driven by higher wholesale sales in the miscellaneous subsector (+16.8%), the largest subsector within the province.
In Quebec, sales increased 1.4% to $11.1 billion. The machinery, equipment and supplies (+4.8%) and personal and household goods (+5.1%) subsectors were the main contributors to the gain. The building materials and supplies subsector (+2.7%) also contributed to the rise, reaching its highest sales value on record.
Sales in Ontario rose for an eighth consecutive month, up 0.4% to $31.8 billion in July. The increase was attributable to higher sales in the food, beverage and tobacco (+3.3%) and the motor vehicle and parts (+2.0%) subsectors. Wholesale sales in Ontario have grown by 8.2% over this eight month period,
In Manitoba, sales rose 0.4% to $1.6 billion with sales up in five subsectors. The majority of the increase was attributable to gains in the building material and supplies subsector, up 6.8% to $225 million in July.
In Newfoundland and Labrador, sales rose 1.1% to $443 million. Sales were up in five of the seven subsectors, with the food, beverage and tobacco subsector contributing the most in dollar terms, up 17.0% to $162 million.
Sales in Nova Scotia (-3.4%) fell in five of the seven subsectors. The decline was mainly attributable to lower wholesale sales in the motor vehicles and parts (-9.9%) and food, beverage and tobacco (-8.5%) subsectors. The loss was partly offset by an increase in the building material and supplies subsector (+9.8%).
Sales in Prince Edward Island were down for a second consecutive month, declining 9.8% to $79 million in July.
In New Brunswick, sales declined 3.2% to $579 million following five consecutive increases. The decrease was led by the food, beverage and tobacco subsector (-12.8%). Wholesale sales were down in all three industries, with the food industry contributing the most to the decline.
Inventories rise in July
Wholesale inventories increased for the fourth consecutive month, up 0.7% to a record $80.8 billion in July. Inventories were up in five of seven subsectors, representing 83% of total wholesale inventories.
Chart 2 Chart 2: Inventories rise in July
Inventories rise in July
In dollar terms, the machinery, equipment and supplies subsector (+1.7%) recorded the largest gain, followed by the motor vehicle and parts subsector (+1.8%). This was the third increase in four months for both subsectors.
The food, beverage and tobacco subsector (+0.7%) posted its fifth increase of 2017.
In the miscellaneous subsector (+0.3%), inventories rose for the 10th consecutive month.
Inventories in the personal and household goods subsector edged up 0.2% in July following a 5.5% gain in June.
The building material and supplies subsector (-0.9%) declined for the first time in three months.
The inventory-to-sales ratio declined from 1.31 in June to 1.30 in July. This ratio is a measure of the time in months required to exhaust inventories if sales were to remain at their current level.
Wholesale trade in British Columbia at a glance
British Columbia had sales of $69.7 billion in 2016—the fourth largest province in terms of its contribution to total wholesale sales. British Columbia accounted for 10% of wholesale sales in Canada in 2016, preceded by Ontario (51%), Quebec (18%) and Alberta (11%).
Chart 3 Chart 3: Provincial shares of total wholesales sales
Provincial shares of total wholesales sales
British Columbia is an important port of entry, especially with Asia, and wholesalers are significantly involved in imports and exports. British Columbia is the third largest province of entry for imports and the fourth largest province of domestic exports. In terms of exports by wholesalers, British Columbia is the third largest among the provinces. British Columbia led growth in gross domestic product for a second consecutive year in 2016.
Chart 4 Chart 4: Gross domestic product growth by province
Gross domestic product growth by province
The top contributing subsectors in British Columbia
The building material and supplies; food, beverage and tobacco; and machinery, equipment and supplies were the top three wholesale subsectors in British Columbia in 2016.
Chart 5 Chart 5: Share of subsectors in total wholesale sales in British Columbia in 2016
Share of subsectors in total wholesale sales in British Columbia in 2016
With the exception of 2008 and 2009, the building material and supplies subsector has been the largest subsector in British Columbia since 2004, followed by the food, beverage and tobacco and the machinery, equipment and supplies subsectors. In 2008 and 2009, the food, beverage and tobacco subsector was the top subsector, largely because sales in the building material and supplies subsector and in the machinery, equipment and supplies subsector declined significantly over this period, while the food, beverage and tobacco subsector was less affected by the recession.
The building material and supplies subsector
The building material and supplies subsector was responsible one-quarter of total wholesale sales in British Columbia in 2016. Among the component industries within this subsector, the lumber, millwork, hardware and other building supplies industry was the largest, accounting for 71% the subsector.
British Columbia accounted for 47% of total Canadian shipments of lumber (softwood and hardwood combined) in 2016 and held 39% of total lumber stocks in Canada.
The recession and recovery
Similar to sales in other provinces, wholesale sales in British Columbia were affected by the economic recession of 2008-2009. Sales declined for seven straight months from September 2008 to March 2009, started recovering since then, exceeded its prerecession high by May 2012, and continued to climb. Sales in the building material and supplies subsector followed a similar pattern. The machinery, equipment and supplies subsector reached its prerecession high in the third quarter of 2014. Conversely, the food, beverage and tobacco subsector contracted less and reached its prerecession level by the fourth quarter of 2011.
Chart 6 Chart 6: Wholesale sales in British Columbia
Wholesale sales in British Columbia
Total wholesale sales in British Columbia have been on an upward trend since late 2009, with sales increasing for seven consecutive years from 2010 to 2016. On average, sales grew 6.0% annually from 2010 to 2016, while overall total wholesale sales in Canada grew 4.6% over the same period. Among the top three subsectors in British Columbia, both the building material and supplies and the machinery, equipment and supplies subsectors rose for seven consecutive years from 2010 to 2016, while, the food, beverage and tobacco subsector increased for six consecutive years.
In 2016, only Prince Edward Island (+9.9%), Saskatchewan (+7.0%) and Newfoundland and Labrador (+6.4%) reported average yearly growth rates above British Columbia.
Seasonally adjusted data of wholesale trade subsectors by province
Beginning in August 2017, the Monthly Wholesale Trade Survey began to publish seasonally adjusted data at the three-digit North American Industry Classification System level for each province and territory. This provides the sales contributions of individual subsectors by province, allowing for a more in-depth analysis of the performance of the provinces and territories within the wholesale trade sector.
From January to July 2017, sales in British Columbia grew 7.5% to $6.6 billion, with the building material and supplies subsector (+16.7% to $1.8 billion) increasing the most in dollar terms, followed by the food, beverage and tobacco (+8.9% to $1.5 billion) and the machinery, equipment and supplies (+4.3% to $1.1 billion) subsectors. Sales also increased in the personal and household goods (+6.7% to $649 million), the motor vehicle and parts (+3.7% to $885 million) and the farm product (+4.7% to $64 million) subsectors over this period. The miscellaneous subsector (-4.6% to $723 million) was the lone subsector to report a year-to-date sales decline in July 2017.
Chart 7 Chart 7: Top five subsectors in British Columbia
Top five subsectors in British Columbia
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/170921/dq170921b-eng.pdf
StatCan. REUTERS. SEPTEMBER 21, 2017. Canada July wholesale trade unexpectedly rose, gains across sectors
OTTAWA (Reuters) - The value of Canadian wholesale trade unexpectedly jumped in July, making for the biggest increase in six months as gains were seen across several sectors, including building materials and food, data from Statistics Canada showed on Thursday.
The 1.5 percent increase exceeded economists’ forecasts for a decline of 0.9 percent and was the biggest increase since January. June’s figures were downwardly revised to show a decrease of 0.6 percent from an initially reported 0.5 percent decline.
Stripping out the effects of price changes, July volumes were even stronger, up 2.1 percent, the largest gain since December 2016.
The surprise increase could bolster expectations for July gross domestic product and offset a decline in manufacturing sales earlier this week.
Attention will likely turn to Friday’s retail sales data to see how growth at the start of the third quarter is shaping up after a strong first half of the year.
Sales rose in five out of seven sectors, accounting for 86 percent of total sales. The building material industry led the way with a 4.8 percent increase, helped by improved sales of lumber and other building supplies.
Sales rose 2.4 percent in the food, beverage and tobacco sector, recovering from a decline in the previous month as all three of the category’s industries increased.
The vehicle and parts sector rose 1.4 percent on stronger sales of vehicles. Auto sales in Canada have been strong so far this year and could put 2017 on track to hit a record.
Reporting by Leah Schnurr; Editing by Bernadette Baum
ECONOMY
The Globe and Mail. THE CANADIAN PRESS. SEPTEMBER 21, 2017. Canadian economy seen growing 3.1% this year but slowdown ahead: Conference Board. The Conference Board of Canada says it expects the economy to grow by 3.1 per cent this year, but cautioned growth will slow over the second half and into next year.
JASON FRANSON, THE CANADIAN PRESS
OTTAWA - The Conference Board of Canada says it expects the economy to grow by 3.1 per cent this year, but cautioned growth will slow over the second half and into next year.
Growth is forecast to slow to two per cent in 2018 due to slower consumer spending and a decline in residential investment.
Matthew Stewart, the board's director for national forecasting, says the Canadian economy is performing well above potential and is on track to outperform most other developed economies by a sizable margin
The Conference Board outlook follows a forecast by the OECD earlier this week that predicted the Canadian economy would grow by 3.2 per cent this year, the fastest pace in the G7, but slow to 2.3 per cent next year.
The Conference Board says an improved labour market has boosted consumer optimism and supported consumption in the first half of the year.
However, it noted that with debt levels near-record highs, consumer spending will need to be better aligned with income growth going forward, while cooling home prices will contribute to slower consumer spending.
NAFTA
The Globe and Mail. REUTERS. SEPTEMBER 21, 2017. TRADE. U.S. bid to tighten NAFTA origin rules for auto sector needless: report
CHRIS HELGREN, REUTERS
GREG KEENAN, AUTO INDUSTRY REPORTER
Vehicles assembled in the three NAFTA countries already contain 75-per-cent North American content, so changing the rules of origin in a new deal to higher than the existing requirement of 62.5 per cent makes little sense, the Bank of Nova Scotia says.
Auto-parts sourcing within the North American free-trade agreement has remained stable despite the emergence of Asia as a large exporter of auto components, providing one example of how the trade deal has benefited the region and should remain in place when it comes to the auto sector, Carlos Gomes, a Bank of Nova Scotia economist who specializes in the auto industry, said in a report.
"There is no need to tighten further NAFTA's rules of origin for the auto sector," Mr. Gomes wrote.
The United States announced as negotiations began on a new NAFTA deal last month that one of its key objectives is to obtain stronger rules of origin for duty-free shipment of vehicles and parts within North America and put in place a minimum amount of U.S. content for all vehicles assembled in the three countries.
So far, U.S. negotiators have not specified the changes they are seeking to the rules of origin or notified Canada and Mexico of their specific demand for U.S. content in vehicles.
Vehicles made in Mexico contain about 40-per-cent U.S. content, he said. Industry estimates show that U.S. content in Canadian assembled vehicles could exceed 55 per cent.
Mr. Gomes said Chinese auto-parts exports to North America have grown at a slower pace than that country's shipments to the European Union.
Auto-parts exports from North America have outpaced overall global auto-parts exports over the past decade, he noted.
He also pointed to the growth of electronics in vehicles in recent years, about 40 per cent of which are imported from outside North America.
"Tightening NAFTA's rules of origin on automobiles, either by raising the NAFTA-wide threshold or by introducing a U.S.-specific content requirement, wouldn't bring the production of these components back," he said.
CETA
Global Affairs Canada. September 21, 2017. CETA: Tariffs plummet to zero today as Canada-European Union deal gets under way
Montreal, Québec – Starting today, under the Canada-European Union Comprehensive Economic and Trade Agreement (CETA); Canadians, including Canadian business owners of all sizes and from all sectors are poised to benefit from unprecedented access to the EU market of half a billion customers, with a GDP of $22 trillion and procurement opportunities worth $3.3 trillion. This is great news for Canada's economy and will make a positive difference for the middle class.
CETA sets new and progressive standards for Canada's future free trade agreements by ensuring that trade puts Canadians front and centre and the emphasis on creating good middle-class jobs.
The Honourable François-Philippe Champagne, Minister of International Trade, today was joined by representatives of the Canadian and European Union business communities at the Port of Montreal to mark a new chapter in the relationship between Canada and the EU. CETA ensures small and medium-sized businesses can compete and win and young entrepreneurs can ensure their future prosperity. It is by far Canada’s most modern, progressive and ambitious trade initiative, and it puts middle-class Canadians at the heart of the Government of Canada’s trade agenda.
With provisional application in force as of today, 98% of tariff lines—9,000 tariff lines—will be duty- free, whether it’s wind turbines, timber or medical devices heading to the European Union or French wine, Italian vinegar or German tools coming to Canada. This benefits Canadian and European Union exporters, importers and, ultimately, consumers, who will enjoy more choices and lower costs for a variety of products and services.
The EU is the world’s second-largest economy and Canada’s second-largest trading partner, after the United States. It is also the world’s second-largest importing market for goods. Preferential access to this large, dynamic market offers tremendous opportunities to create good-paying middle-class jobs for Canadians, a real competitive edge for Canada and significant opportunities for businesses to diversify in the world’s most lucrative market.
Free and open trade that ensures all segments of society are able to realize the benefits of globalization, especially small-business owners, women, Indigenous people and youth, is the guiding principle behind Canada’s progressive trade agenda. With CETA, Canada has created a new level of ambition for Canadian trade in the world, a world-class platform for the country’s businesses to compete from and win and the opportunity to create more middle-class jobs for Canadians.
Quotes
“Today marks an important moment for progressive trade in the world. And with it, Canada and the European Union have made history. I am pleased to be joined today by representatives of Canadian businesses of all sizes, including those that are owned by women, youth and Indigenous groups, to mark the date on which the middle class and those working hard to join it will have countless new opportunities to compete and win in the European Union and create good jobs at home.”
-François-Philippe Champagne, Minister of International Trade
“The Government of Quebec has been one of the main promoters of CETA, an agreement that will facilitate trade in goods, the mobility of individuals and the movement of capital. We are especially proud to announce today the provisional application of this agreement, which will stimulate investments, partnerships and business opportunities that benefit Quebec’s economy.”
-Dominique Anglade, Minister of the Economy, Science and Innovation and Minister responsible for the Digital Strategy
Quick facts
- Prime Minister Justin Trudeau and President of the European Commission Jean-Claude Juncker agreed to September 21, 2017, as the date of provisional application of the Comprehensive Economic and Trade Agreement.
- On the date of provisional application, 98% of EU tariff lines will be duty free for Canadian goods. An additional 1% will be eliminated over a seven-year phase-out.
- Tariff elimination will provide enhanced export opportunities in the EU market for Canadian producers, processors and manufacturers, as well as for agricultural and agri-food products, fish and seafood, forestry goods and the full range of industrial goods.
- Additional opportunities will come as a result of increased market access for goods, commitments on trade in services and labour mobility, as well as increased access to government procurement.
- Once all EU member states have ratified CETA, Canada and the EU can bring it fully into force.
Global Affairs Canada. September 21, 2017. Speech. Provisional application of CETA - The Honourable François-Philippe Champagne, Minister of International Trade
Port of Montréal, PQ - Check against delivery. This speech has been translated in accordance with the Government of Canada’s official languages policy and edited for posting and distribution in accordance with its communications policy.
It’s a great pleasure to be here in the Port of Montreal because, well, as you can see, this is where trade literally happens.
What can be lost in the hustle and bustle of this place is that this is the point of departure for a middle class Canadians’ first exports; the very moment when she realizes her hopes and ambitions to go global.
It is fitting then that we stand here today surrounded by innovative Canadians and business owners of all sizes to usher in a new era of trade, to proudly celebrate a new chapter between the European Union and Canada and, most importantly, to celebrate CETA, the gold-standard in progressive trade and an ambitious deal that puts people, particularly the middle class, front and centre.
This is a great day for Montréalers, Quebekers and all Canadians.
We have worked hard in anticipation of this day for ten years.
We may not have realized it then but this is the right deal at the right time.
As of today, 98 percent of tariff lines between Canada and the EU will be duty free. More than 9000 tariff lines are duty-free.
As of today, Canadians have access to a market of more than 500 million consumers and a procurement market worth a staggering $3.3 trillion.
Consumers will be getting more choice and lower prices and that’s good for access, good for competition and great news for Canadians looking to expand, succeed and win in the world’s most lucrative market.
Canadians now have preferential market access, through 12 trade agreements to 44 countries with almost 1.2 billion consumers and a combined GDP of over US$41.2 trillion. This represents over one-half of the world’s output of goods and services.
Canada is now literally at the centre of a network of free trade agreements connecting the Americas, Asia and Europe.
That is important because in a world marked by instability and uncertainty, Canada (and the EU) can be proud of the fact that we are beacons of stability, predictability, the rule of law.
We can be proud of our diverse societies where fairness is prioritized and where the future prosperity of the middle class matters most.
The timing of CETA is another big advantage for Canada.
Canadians will be first in line to establish customer relationships, networks and joint projects in the EU.
When you unwind the red tape tangling up imports and exports, business owners can expand their enterprises.
We reached this milestone because while we know that trade matters, we needed to rethink how we approached trade agreements.
As Prime Minister Justin Trudeau set out for us on Day One, we need to make ‘trade real for people’.
So together with our European Union counterparts, we reoriented the approach to trade so that it is progressive. We put the middle class and those working hard to join it first.
Because if we are not working hard to make trade real for people and giving Canadians a fair shot to ensure their future prosperity than we are standing still and letting others set the agenda for us.
As Canada’s chief marketing officer, I know Canadians can compete and win in overseas markets.
During my official travels, I’ve had the opportunity to see many great Canadian businesses diversify into and succeed in new markets around the world.
For Hygie Canada CETA represents a golden opportunity to be on an equal footing with our European Union competitors and to be able to access public markets without being disadvantaged by tariffs.
Little Miss Chief’s Indigenous owned company from Westbank British Colombia’s already exports wine-marinated wild Pacific salmon to the Netherlands, Poland and Spain … The EU imported $36 million of fish and seafood in 2016 so there is the potential to make even more of a splash.
And, a Metis man, Luc Martin, who had a vision of innovative children’s play equipment that could truly challenge children around the world to overcome obstacles, reach new heights and proudly realize their own capabilities.
With CETA, the current EU tariffs on Dynamo Playground’s products drop to zero and open up the procurement markets in all levels of government across the EU for Dynamo to sell more, more, more.
Purkinje Inc. is a Montreal-based company specialized in offering IT solutions in the field of healthcare to facilitate the work of health professionals, serving over 7000 health professionals across Canada and abroad. The company currently operates in China and India, and is interested in the European Union. The company’s Co-President, Mary-AnneCarignan, sees in CETA an opportunity for Purkinje to diversify and expand, drawing on the company’s diversity and CETA’s labour mobility commitments.
CETA shows us that no business is too small to succeed and that the ambitions of middle class Canadians can be at the forefront of our agenda.
And with our government’s investments in skills training, youth and innovation, more Canadians are well-positioned to grow and to create more middle-class jobs.
Trade Matters. Trade is vital to our economic success in the 21st century: to job creation, to a strong middle class, and to the prosperity of those working hard to join it.
When we offer SMEs more opportunities to export and hard-working Canadians the skills and support they need to take advantage of new markets, to access larger buyers and supply chains, we all benefit.
This is where you come in. The Canadian businesses and workers gathered here, the future entrepreneurs and students brimming with ideas around the country; all of you bring these agreements to life.
Every small business owner knows the distance from their first spark of an idea to putting it into practice is a long and challenging road.
While sometimes it feels risky to pursue overseas markets where language, culture, practices and market preferences may be different, smart business owners understand that this type of diversification is actually an important risk-management tool when weather or political uncertainty disrupt primary export markets.
I encourage all Canadians to use the tools we have like our trade commissioners on the ground; they are located in 26 embassies and consulates in the EU, and their job is to connect all Canadians to the opportunities that CETA has created.
Ladies and gentlemen, we set a high level of ambition for progressive trade and for putting the interests of our middle class front and centre. CETA has delivered.
CETA demonstrates that we can improve the rules that govern trade.
Just as Canada was a principal architect of the rules that governed the post-WWII global economic order, we are rewriting those rules for the 21st century economy today.
We are rewriting them so that everyone benefits.
CETA demonstrates that we can set the terms for a more fair and progressive global trade agenda where the middle class can see themselves competing and winning on the global stage.
Canada can and will chart the course of our 21st century prosperity.
As we stand here at this gateway to the world let’s prove that. Let’s be ambitious. Trade matters. Now is our time.
Thank you. Merci.
BLOOMBERG. 21 September 2017. Trudeau Pitches ‘Progressive’ Trade as EU-Canada Pact Kicks In
By Josh Wingrove
- Champagne says CETA is the ‘gold standard’ for trade
- Juncker says deal represents what EU wants trade policy to be
The majority of the accord, known as CETA, took effect Thursday, though key elements -- such as controversial investor-state dispute provisions -- are still subject to nation-by-nation ratification that could take years. The Canadian government nonetheless is holding the deal up as an example.
"This is the most progressive trade deal in the world, this is the gold standard," Canadian Trade Minister Francois-Philippe Champagne said in a telephone interview Wednesday. "Trade is a march to the top, not a race to the bottom."
European Commission President Jean-Claude Juncker said the deal encapsulates what Europe wants its trade policy to be, while Canadian Prime Minister Justin Trudeau praised the deal while speaking to the Bloomberg Global Business Forum in New York on Wednesday.
“We need to now make that next step of promoting a trade agenda by talking about the progressive side of the trade agenda," Trudeau said. "That doesn’t mean just making a progressive case for trade, it means actually putting forward progressive trade deals."
Ratification, Brexit
Champagne acknowledged that ratification could take years, while the European Commission said in a statement that it will work with EU member states and Canada to ensure "smooth and effective implementation" of the accord.
Trudeau and U.K. Prime Minister Theresa May, during a meeting this week in Ottawa, said they will use CETA as a basis for an ongoing trade relationship between the countries when the U.K. leaves the EU. The U.K. is Canada’s fifth-largest trading partner, and its biggest EU trading partner.
"We will have a free trade with Europe and Britain tomorrow, and that is well understood," Champagne said in the interview, saying he’s discussed next steps with British Trade Secretary Liam Fox. "For them it is very important as well, because we are a very important trading partner for them."
Canada has proposed many of the elements of CETA in talks to revise the North American Free Trade Agreement, which remain in early stages and haven’t yielded major breakthroughs after two rounds of negotiations.
Bilateral trade in goods between the EU and Canada totaled 63.5 billion euros ($75 billion) in 2015, according to the European Commission. The EU has estimated the accord would boost EU economic output by about 12 billion euros a year and increase EU-Canadian trade by about a quarter. "CETA is a modern and progressive agreement, underlining our commitment to free and fair trade based on values," European Trade Commissioner Cecilia Malmstrom said in a statement.
— With assistance by Greg Quinn, and Jonathan Stearns
AVIATION
The Globe and Mail. 21 Sep 2017. Ottawa urged to open jet competition. Lockheed-Martin says government should look to fully replace its aging CF-18 fleet rather than purchase interim aircraft from Boeing
DANIEL LEBLANC
The manufacturer of the F-35 stealth fighter aircraft is urging the federal government to skip its increasingly complicated plans to purchase an interim fleet of rival jets and open up tenders for the full replacement of Canada’s CF-18s.
JEFF J MITCHELL/GETTY IMAGES
An F-35B Lightning II aircraft taxis down a runway in Beaufort, S.C. F-35 manufacturer Lockheed-Martin is pushing for Canada to open tenders for the full replacement of its aging fighter-jet fleet.
The head of the F-35 Lightning II program said that Lockheed-Martin Corp. could start delivering a full fleet of new jets as quickly as Boeing Co. can produce an interim fleet of 18 Super Hornets for the Royal Canadian Air Force. The interim purchase, which was announced by Ottawa late last year and is now valued at $6.4billion, would be a stopgap for the Canadian military before the full $19-billion replacement in the next decade.
“We can get F-35s in country just as fast as they can get new Super Hornets, it’s that simple,” Lockheed-Martin executive vice-president Jeff Babione said in an interview on Wednesday. “We have the airplane, we can deliver it in a manner that meets your timing, and going to a competition more quickly will get you the capability that ultimately, we think, the Canadian government needs.”
His comments were made as Ottawa and Boeing are embroiled in a heightening war of words over a trade dispute involving Canadian-based Bombardier Inc. in front of the U.S. Department of Commerce.
Boeing is refusing to drop its trade complaint against the Canadian-based aerospace company over allegations of illegal subsidies and dumping in relation to a money-losing sale to Delta Air Lines last year, while Ottawa has retaliated by stalling on its planned procurement of Super Hornets.
Federal ministers have publicly lashed out at Boeing for failing to act as a “trusted” or “valued” partner with the Canadian government in the dispute. This week, Prime Minister Justin Trudeau accused the company of trying to kill thousands of jobs in the Canadian aerospace sector with its complaint. A decision in this dispute is expected next week.
The Liberals have also feuded with Lockheed-Martin in the past, with the party promising in the previous election that it would not buy the F-35s that had been favoured by the previous Conservative government.
However, Mr. Babione said the Canadian government can count on Lockheed-Martin for the planned purchase of a full fleet of 88 fighter jets, pointing out his company has already delivered more than 240 F-35s around the world.
“This is an opportunity to reassure the Canadian government that as a trusted partner, Lockheed-Martin is here to help them with their fighter shortfall,” he said.
A key decision for the government will be whether it will resume discussions on the acquisition of the Super Hornets if and when the trade dispute is eventually resolved. Ottawa has already said it is looking at other options, including the acquisition of second-hand fighter jets in Australia.
“We continue to look for options on an interim solution because our Forces need to have the equipment that they’re supposed to have to fulfill their responsibilities and to serve their country, and we’re going to continue to do that,” Mr. Trudeau told reporters on Tuesday.
Based in Fort Worth, Tex., Mr. Babione was in Ottawa to hold meetings at the bureaucratic level with officials from the departments of Innovation and Defence, in addition to meeting suppliers in the Canadian aerospace industry.
As it stands, there is approximately $3.1-million in Canadian content in each F-35, or just less than 3 per cent of its fly-away cost. With more than 3,000 aircraft expected to be sold around the world for the duration of the F-35 program, Lockheed-Martin is promising huge benefits for Canadian suppliers if the federal government continues to participate in the program.
Lockheed-Martin points out that it sold 60 F-35s to South Korea for $13.2-billion, saying the figure compares favourably with the U.S. government’s price tag of $6.4-billion for 18 Super Hornets.
Mr. Babione said that buying a full fleet could end up being more cost-effective than proceeding with the interim fleet, especially if the government ends up buying two different fighter jets.
“An interim buy would not add value to the ultimate buy. That’s why going immediately to a competition is more cost-effective. Both companies can deliver the airplanes in the same period of time; let’s just get on with the one you want,” he said.
The Globe and Mail. 21 Sep 2017. Super Hornet stung by Prime Minister
Turning now to the strange brouhaha involving Prime Minister Justin Trudeau, Bombardier Inc., and U.S. aircraft maker Boeing – there’s a lot going on, much of it perplexing.
Ostensibly, it’s a commercial spat between rivals in a rarefied business. Mr. Trudeau decided his best move was to plot a flight plan right into the centre of it.
Boeing alleges unfairly generous provincial and federal subsidies have allowed Bombardier to slash the sticker price on its C-series aircraft to “absurdly low” levels – the term of art is dumping and the U.S.-based company wants punitive tariffs.
That Boeing would go after Bombardier despite offering no models that directly compete with the C-series is more than a little weird. And in any case, other aerospace companies, including Boeing, all receive vast government assistance. What’s more, all businesses sometimes hawk new products at deep discounts.
Distinguishing anti-competitive practices from aggressive business strategy is tricky; one person’s dumping is another’s loss-leader. Mr. Trudeau can rightly accuse Boeing of pursuing “narrow economic interest to harm a potential competitor.” But escalating the fight, by pulling in British PM Theresa May – Bombardier is Northern Ireland’s largest private employer – and threatening to drop plans for Canada to buy $6-billion worth of Boeing-built Super Hornet fighter jets because, as Mr. Trudeau put it, “we won’t do business with a company that’s busy trying to sue us and trying to put our aerospace workers out of business,” risks proving Boeing’s point. It underlines that Bombardier has no better, more indispensable friend than the Canadian government.
And then there’s the collateral damage in all of this. Long-term national defence planning deserves better than third-rank consideration behind Ottawa’s defence of Bombardier.
The question, then, is whether Mr. Trudeau’s response has been sensible and optimal, or overkill. It feels like the latter.
Answers as to what comes next could land on Sept. 26, when the U.S. Commerce Department issues its preliminary ruling on Boeing’s complaint. In the meantime, we’re in a world where Bombardier workers in Toronto decided the best expression of solidarity with management was a work stoppage. Curious times indeed.
The Globe and Mail. 21 Sep 2017. Trudeau’s Boeing bashing harms Canada. PM’s politically motivated support for Bombardier undermines a global legal system that protects countries from arbitrary actions
MICHEAL BYERS, holds the Canada Research Chair in Global Politics and International Law at the University of British Columbia
REMY DE LA MAUVINIERE/AP
Justin Trudeau’s linking of the trade dispute involving Bombardier with the ‘interim’ purchase of 18 Boeing fighter jets merely extends the Canadian Forces’ capability gap that his government identified.
Justin Trudeau has been far from conciliatory in his dispute with Boeing. “We won’t do business with a company that is busy trying to sue us and put our aerospace workers out of business,” the Prime Minister said at a news conference on Monday.
Mr. Trudeau might sound tough and principled, but he’s playing domestic politics – to the detriment of Canada’s wider interests in a rule-based system of international trade.
Politically motivated support for Montreal-based Bombardier is a Canadian tradition. In 2001, the Jean Chrétien government gave the company a $1.7-billion low-interest loan to help secure an order from Air Wisconsin.
I remember having coffee with a retired Liberal cabinet minister the day after the loan was announced. I expressed surprise that the government would act in a manner that so clearly violated World Trade Organization rules.
“The PM doesn’t care about the WTO,” the ex-minister replied. “This is about jobs and votes.”
Brazil promptly challenged the loan on behalf of its national airplane manufacturer Embraer. The WTO confirmed that Canada had acted illegally and authorized Brazil to impose $247-million (U.S.) in retaliatory trade sanctions. As a result, not only did Canadian taxpayers fund the loan to Bombardier; Canadian exporters paid a hefty fine on top of the subsidy.
Fast forward to 2015, when the Quebec government provided Bombardier with an emergency bailout of $1-billion. It was cast as an investment, with the province receiving a 49.5-per-cent stake in a new limited partnership created specifically for the manufacturing of C Series planes.
However, given the precarious nature of Bombardier’s finances, it is unlikely that any commercial investor would have spent $1-billion without insisting on acquiring control of the company.
The Trudeau government knew that Quebec had violated international trade law. This explains why it took 16 months to come up with a different mechanism for providing federal support for Bombardier, via a $372.5-million (Canadian) loan for “research and development.”
Yet at the international level, the federal government is also answerable for the actions of provincial governments.
Brazil has already initiated another WTO complaint, arguing – again on behalf of Embraer – that Quebec’s 2015 “investment” is an illegal subsidy.
Boeing, for its part, has filed a complaint with the U.S. International Trade Commission, a quasi-judicial body that advises the U.S. Congress on trade matters. If the International Trade Commission finds that Quebec subsidized Bombardier, Congress will likely adopt trade sanctions. And then Canada could file a complaint against the United States with the WTO.
These dispute-settlement processes are rigorous and objective. This is something that successive Canadian governments have valued because free trade requires the apolitical application of rules.
Mr. Trudeau, by trying to strong-arm Boeing, is undermining these processes and Canada’s long-term interest in an international legal system that protects countries and companies against arbitrary and unfounded actions.
He is also contradicting himself. It was the Trudeau government that fought to keep third-party dispute settlement in the Comprehensive Economic and Trade Agreement with the European Union. It is the Trudeau government that is resisting the efforts of U.S. negotiators to remove third-party dispute settlement from the North America free-trade agreement. Yet in the Boeing case, Mr. Trudeau wants to pre-empt third-party dispute settlement through economic coercion.
Aggravating matters, Mr. Trudeau has dragged military procurement into a dispute over commercial trade and investment.
Yet, military procurement has always been treated separately from other economic matters. It is not subject to trade and investment treaties precisely because of the critical importance of military equipment to national security.
By conflating a military procurement with a commercial trade dispute, Mr. Trudeau is damaging Canada’s reputation as a reliable procurement partner. This will complicate and further delay procurements that are necessary for the protection of Canadians at home as well as the ability of our soldiers, sailors and pilots to contribute to missions abroad.
The procurement of fighter jets is a case in point. The Trudeau government says there is a “capability gap,” since our CF-18s are three decades old. Yet, by linking the dispute over Bombardier with the “interim” purchase of 18 Super Hornets, Mr. Trudeau is extending the capability gap that his own government identified.
Beating up on Boeing is bad for Canada. If Mr. Trudeau wants to defend Quebec and Bombardier, he should do so at the WTO, and not on TV.
The Globe and Mail. 21 Sep 2017. Bombardier eyes plan B amid dispute over C Series. Bombardier: Marketing C Series beyond U.S. would be a priority
NICOLAS VAN PRAET
The winds are blowing against Bombardier Inc. in its trade war with Boeing Co. as some analysts expect a preliminary ruling from the U.S. Department of Commerce early next week to go against the Canadian plane maker.
But in what is shaping up to be a prolonged legal battle, Bombardier’s moves behind the scenes in coming weeks and months to carry out contingency plans could be crucial to demonstrate the continued viability of its $6-billion C Series program and prevent momentum it has achieved with the flagship airliner from stalling.
Commerce is scheduled to make an initial determination Tuesday on whether to impose countervailing duties on C Series aircraft. JPMorgan analyst Seth Seifman is among analysts who believe duties will be levied.
Final rulings on whether those duties will actually take effect likely won’t come until some time next year, after Boeing tries to prove it was harmed by Bombardier.
Boeing alleges that the Canadian company sold 75 C Series planes to U.S.-based Delta Air Lines Inc. at “absurdly low prices” while benefiting from unfair subsidies from the Canadian, Quebec and British governments. It has asked the U.S. government to impose antidumping and countervailing duties on C Series planes imported into the United States. Bombardier denies it did anything wrong, saying Boeing is trying to stifle the technological innovation the C Series brings.
Bombardier is looking past the preliminary rulings toward the final decisions, saying U.S. trade laws were not designed to deal with complex products such as aircraft, so early-stage rulings are hard to predict.
But even an initial ruling against the Canadian plane maker could hurt.
“An unfavourable preliminary ruling could dampen the company’s ability to secure orders as the largest addressable market [the United States] becomes potentially inaccessible,” Bank of Montreal analyst Fadi Chamoun said. “This development could also limit the company’s ability to achieve success outside the U.S., especially at improved prices.”
What its contingency plans might be, Bombardier won’t say. But there are some possibilities, both short and longer term.
The first is striking a deal to sell C Series aircraft with a top-tier carrier outside the United States to show customers and investors that there is interest in the aircraft from big-name airlines beside Delta. British Airways parent IAG is a possible buyer, and not only because it has kicked the tires on the C Series in the past.
Willie Walsh, IAG’s chief executive officer, has praised Bombardier for taking on Boeing and Airbus Group SE more squarely in the market for single-aisle aircraft. He’s also said the C Series could be particularly well suited to replace BA’s existing planes at London City Airport. City is a steep-approach airfield where Bombardier’s C Series are seen as a potentially game-changing tool for airlines there because of their range. British Airways’ involvement would also dovetail with a recent move by British Prime Minister Theresa May to join Canada in its effort to get Boeing to drop its complaint.
Another potential course of action is selling to a non-U.S. aircraft leasing company, which would buy the C Series free of any U.S. duties and lease them to U.S. airlines. This option has been evoked by analysts Dan Fong of Veritas Investment Research and Konark Gupta of Macquarie Research. Delta, which ordered 75 C Series planes in a transaction that breathed life into the oncetroubled jet program, could use this scheme to take delivery of the aircraft through an operating lease agreement if duties are implemented against Bombardier, Mr. Gupta says.
“The bottom line is that Bombardier could find alternative ways to place C Series in the U.S., potentially at better cash flows, if Boeing comes out as a winner this time,” Mr. Gupta said in a Sept. 18 note.
“Such alternative ways may not be ideal for Bombardier or airlines but Boeing’s win could also be potentially overturned in the future” through appeal.
Finally, a strategy that could take longer to play out is penetrating deeper into Asia as a way to offset any business lost in the United States. Bombardier has yet to unlock China as a market for the C Series. But the potential is there to speed up that effort.
China is already a key supplier on the C Series. The aircraft’s fuselage is built by Shenyang Aircraft Corp. Chinese state-owned manufacturer Commercial Aircraft Corp. of China Ltd. (Comac) is working with at least one bank on a tie-up with Bombardier that could see it make an investment in Bombardier aerospace or take a stake in the C Series program, the Financial Times reported in May. Bombardier (BBD.B) Close: $2.39, down 1¢
SOFTWOOD LUMBER
The Globe and Mail. Bloomberg. 21 Sep 2017. Trump’s ‘America First’ vow turned upside down in lumber market
JEN SKERRITT
Donald Trump’s policy on trade since becoming U.S. President has been all about putting “America First.” But in one corner of the commodity world, his actions are having the opposite effect.
In a move intended to protect the domestic lumber industry, the United States this year slapped duties of as much as 32 per cent on imports of timber from Canada, which supplies more than a quarter of what American builders use each year. Prices surged, increasing costs for American buyers – and boosting profit for Canadian producers.
Shares of Canadian softwood lumber producers Canfor Corp. and West Fraser Timber Co. Ltd. are outperforming their American peers with gains of more than 40 per cent this year, placing them among the top performers on the Bloomberg Intelligence global paper and wood products index. By contrast, shares of U.S. rival Weyerhaeuser Co. are up about 10 per cent.
Lumber futures jumped 16 per cent in 2017 as U.S. trade limits and western wildfires spark concerns over limited supplies, just as communities in Texas and Florida begin to rebuild after devastating hurricanes in the past month. That means more gains ahead for Canfor and West Fraser, which have more exposure to softwood-lumber prices than their American peers, including Weyerhaeuser and Potlatch Corp., according to Christoph Butz, a senior investment manager of timber funds at Pictet Asset Management in Geneva.
“There is no way lumber prices can nosedive,” said Mr. Butz, whose firm is one of the largest shareholders of Vancouver-based Canfor. Canadian producers “have a much stronger direct exposure, since that is really the bulk of the business,” he said. Renewing dispute
Disputes between the countries over softwood lumber have caused intermittent friction for years. Canada’s share of the U.S. lumber market averaged 28 per cent under a previous trade agreement, Joshua Zaret, a Bloomberg Intelligence analyst, said in a March report, citing data from the Congressional Research Service.
Tensions escalated in April when the Trump administration imposed preliminary countervailing duties of as much as 24 per cent on Canadian imports. Additional duties of as much as 7.7 per cent followed in June. But most of those increases have been passed along to consumers.
“This is a strong market,” Mr. Zaret said. “If it were a weak market, they wouldn’t be able to push through prices, and they’d have to eat the tariffs.”
The U.S. tariffs sent lumber prices surging at a time when demand from home builders was already strong, Mr. Butz said. While the lion’s share of the Canadian producers’ business is directly linked to lumber, the American companies have more investments in private U.S. timberlands and mills in the country’s south, where log prices haven’t increased as much, he said.
“Prices have gone up, and the U.S. market has absorbed the prices,” said Philippe Couillard, Premier of Quebec, Canada’s second-largest lumber-exporting province. In Canada, “not a single worker has been laid off, not a single plant has been closed,” Mr. Couillard said in an Sept. 18 interview. Rising costs
The trade dispute pushed up material costs for house builders in the United States by 20 per cent, Jerry Howard, chief executive officer of the National Association of Home Builders, said last month.
On the Chicago Mercantile Exchange, lumber futures are up 25 per cent over the past 12 months to $381.80 (U.S.) per 1,000 board feet. Prices have room to keep climbing, said Kevin Mason, managing director of Vancouverbased ERA Forest Products Research. Lumber could reach $400 over the next month if mills start running low on logs after wildfires in some key forest areas, Mr. Mason said.
Wildfires in western parts of Canada, along with some in the United States, are threatening tree supplies and have prompted limitations on log harvesting, Mr. Mason said. An infestation of the mountain pine beetle also has eaten away at timber in British Columbia.
Output threats can become a bit of a double-edged sword for Canada’s producers. On the one hand, they’re likely to keep lumber prices high. But wildfires and pests also could hurt sales and impede the ability of companies to deliver large volumes. That could mean a boost for other global suppliers.
“All that lumber needs to come from somewhere,” Mr. Butz said. Canfor (CFP)
Close: $23.43, up 32¢
West Fraser Timber (WFT) Close: $71.15, up $1.68 Weyerhaeuser (WY) Close: $33.40 (U.S.), up 12¢
COMPANIES
The Globe and Mail. 21 Sep 2017. Toronto looks to build World Trade Centre complex
JEFF GRAY
The Toronto Region Board of Trade is planning to build a World Trade Centre complex in the city to house its headquarters, with the hope of establishing a prestigious local address that will draw foreign consulsgeneral, trade-promotion agencies and other commercial tenants.
For many, the name World Trade Center conjures up New York’s Twin Towers, which were destroyed by hijacked planes on Sept. 11, 2001. That site is now home to a new complex that includes the 94-storey One World Trade Center, the tallest skyscraper in the Western Hemisphere. Other cities, including Seoul, Bahrain and Sao Paulo, also have World Trade Center buildings.
Jan De Silva, president and chief executive officer of the Toronto board of trade, said in an interview that the new building project is meant to create a landmark in the city and promote international trade.
“We’re talking about building Toronto’s international profile, within our skyline,” Ms. De Silva said. “If we look at World Trade Centers around the world, they’re iconic, they are commanding some of the highest rents in the city. They are hubs for trade and investment.”
Ms. De Silva announced the plans at a reception on Wednesday evening. World Trade Centers are a network of similar institutions around the world and the Toronto Region Board of Trade owns the local rights to the name. The board’s current offices are in the financial district, where it offers services to local businesses looking to export.
There are scores of World Trade Centers in other countries, most much lower in profile than the one in New York. They are usually premium office buildings with distinctive architecture that are home to business tenants as well as trade-promotion agencies. Having such a building in Toronto would help promote the city overseas, the board says.
The project has no site and no design just yet, although Ms. De Silva lists as possible locations the waterfront, the Metro Toronto Convention Centre, which Oxford Properties plans to redevelop, and First Gulf’s massive East Harbour project.
The board and real estate company CBRE Group sent out an official request this week for expressions of interest from developers and landowners.
It will be several years before anything is built. The board is committed to its space at First Canadian Place until 2024.
The notion of building and marketing a World Trade Centre as a prestigious address for Toronto comes in the middle of a building boom and the lowest office-space vacancy rate of any major city in North America. At a local record of 3.8 per cent, Toronto’s office vacancy rate is much lower than even San Francisco’s, at 6.7 per cent.
Toronto developer Stephen Diamond said the project sounded like a bonus for an interested developer and a potential boon for the city. But he said the building boom could make finding a suitably sized plot of land a challenge: “I think they will get a lot of interest. The core’s very vibrant now. I think it sounds like a great idea.”
Ms. De Silva said she discussed the plan with Mayor John Tory on his June trade mission to Chicago and promised to deliver a landmark structure: “When I was with the mayor in Chicago, and they have iconic architecture there … he asked me that I promise him that we would have something that is truly architecturally stunning.”
Werner Dietl, executive vicepresident of CBRE and the firm’s regional managing director for greater Toronto, said the project could go into a new building or a development already in the works that could be retooled to accommodate it. The board of trade intends to be a tenant, not owner, of the building.
“I think there are going to be some interesting opportunities that are going to come out of the woodwork on this one,” Mr. Dietl said in an interview.
According to documents distributed as part of the request for expressions of interest, World Trade Center-branded buildings can command higher rents than other office towers and typically have higher occupancy rates.
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