CANADA ECONOMICS
NAFTA
The Globe and Mail. 6 Nov 2017. Auto-parts makers’ solid run may come undone in NAFTA reshuffle. Parts: Canadian, Mexican production most at risk in NAFTA talks
DAVID MILSTEAD
The stocks of Canadian autoparts makers have been on a tear, buoyed by the belief that replacing all the cars lost in last summer’s hurricanes will boost sales. Third-quarter earnings numbers, which start Tuesday from Linamar Corp., should do little to dissuade investors.
Still, the stocks have run so far, so fast, it suggests the market is ignoring another storm: The continuing renegotiation of the North American free-trade agreement, an upending of which could throw a significant wrench into the three companies’ business models. Linamar, as well as Magna International Inc. and Martinrea International Inc., have all participated in an updraft in auto-parts makers since Hurricane Harvey; Goldman Sachs notes the entire group of North American auto suppliers jumped 15.8 per cent from Aug. 17 to mid-October, with the S&P 500 up just 5.1 per cent. The three Canadian parts companies have added to those gains in the past three weeks.
The shares of all three were down in the dumps at the beginning of the Donald Trump administration, what with the newly elected President’s tough talk on trade. But solid numbers of auto purchases in the U.S. auto sector, believed to be late in a sales cycle, plus the hurricane factor have boosted the shares in 2017. Now, the average auto-supplier stock’s earnings multiple is closer to peak than to its average, Goldman says. According to Standard & Poor’s Global Market Intelligence, Linamar, Magna and Martinrea are all sporting multiples not seen since early 2016.
That’s led Goldman to suggest investors trim positions with significant regional exposure to North American production.
And while Goldman’s Canadian coverage is limited to Magna – which it cut to a “sell” rating last month, with a target price of $41 (U.S.) that implies 25per-cent downside – the description applies to all three of the Canadian suppliers.
Peter Sklar of BMO Nesbitt Burns Inc. says Canadian and Mexican production is most at risk in a NAFTA renegotiation. And while Martinrea and Magna derive roughly half of their production revenues from plants in Canada and Mexico, the number tops 80 per cent for Linamar, making it the most vulnerable to major changes in the agreement.
What are the possibilities? Well, for the past 23 years, NAFTA specified at least 62.5 per cent of a vehicle must originate from North America to qualify for duty-free trade within the region, Mr. Sklar says. The Trump administration has proposed the North American number to be raised to 85 per cent, with a 50-per-cent minimum requirement for U.S. content. A minimum U.S.-content requirement “would likely isolate the Canadian and Mexican plants of the Canadian suppliers,” Mr. Sklar says, and be “very negative” for the three.
There’s also the possibility negotiations fail, and NAFTA is terminated. A high tariff – say 35 per cent – may prompt auto makers to import from lower-cost countries that can offset the high tariff, again a “very negative” outcome for the Canadian companies, Mr. Sklar says. Reverting back to “most favoured nation” tariffs – 2.5 per cent on light vehicles but 25 per cent on popular pickup trucks – would be merely “somewhat” negative, he says.
And of course, NAFTA could also be renegotiated with something other than what the United States has proposed, which is the big unknown. But Mr. Sklar believes at least one thing: “There could be potential downside for the Canadian auto stocks as they are not pricing in any likelihood of a materially negative outcome from the NAFTA renegotiation.”
Mr. Sklar has “market perform” ratings on Linamar and Magna and an “outperform” on Martinrea, “due to our belief that the company is executing a successful turnaround story following three consecutive quarters of strongerthan-expected results.”
That sunny view on Martinrea is widely shared: According to Bloomberg, eight of the 10 analysts covering it have a “buy” rating, with a return potential of 13 per cent on the average target price. The run-up in the sector is cooling sentiment on the larger two: Magna has 11 buys, nine holds and two sells in the analyst coverage, and Linamar has four buys, four holds and a sell. Their average target prices imply returns of 1 per cent to 2 per cent – likely not enough upside to justify the continuing risk of the Trump trade.
FINANCE
Department of Finance Canada. November 6, 2017. Government of Canada Plans to Issue US-Dollar Global Bond
Ottawa, Ontario – The long-term financial security of Canadians is a cornerstone of the Government of Canada's efforts to help protect the middle class and those working hard to join it.
Today, the Government of Canada announced plans to issue a US-dollar-denominated global bond later this week, subject to market conditions.
Issuing a global bond provides funds to supplement and diversify Canada's foreign exchange reserves for the benefit of Canada's financial position.
Quick Facts
- Canada holds its foreign exchange reserves in the Exchange Fund Account (EFA).
- Foreign exchange reserves provide a general source of prudential liquidity and support the promotion of orderly conditions for the Canadian dollar in foreign exchange markets.
- Funds for the EFA can be raised through cross-currency swaps of Canadian-dollar borrowings, foreign-currency-denominated debt issues and outright purchases of foreign currency.
FULL DOCUMENT: http://www.fin.gc.ca/n17/17-111-eng.asp
Canada Revenue Agency. November 3, 2017. Statement by the Canada Revenue Agency - Offshore financial structures. Statements
Ottawa, Ontario - In the wake of renewed media attention concerning offshore financial structures, the Canada Revenue Agency (CRA) is delivering the following statement to inform Canadians on the work and progress being made to combat tax evasion and tax avoidance. The CRA is also taking the opportunity to highlight the important work Canada is doing on the world stage through increased cooperation and collaboration with its international partners to better combat those hiding their assets offshore.
The Government understands that tax evasion and tax avoidance are multi-billion-dollar issues, and it has made a billion-dollar investment to tackle it. Almost two-thirds of the CRA’s audit fiscal impact of $25 billion over the last two years was from audits of international, large business and aggressive tax planning activities. The CRA currently has more than 990 audits and more than 42 criminal investigations related to offshore underway.
This investment has signaled to Canadians that the CRA continues to expand the tools it has to better ensure the integrity of the tax system so that no one avoids paying their part to support the services and quality of life Canadians expect.
The CRA is ensuring that those who choose to break the law face the consequences and are held accountable, starting with tax professionals who facilitate non-compliance - the CRA levied more than $44 million in third-party penalties on tax advisors last year and there are presently a number of criminal cases under way. The Agency has a full-time dedicated unit focused on offshore non-compliance and we are reviewing money transfers over $10,000 between Canada and four offshore jurisdictions such as the Isle of Man. In addition, the CRA is risk-assessing 100% of large multinational corporations, analyzing the tax affairs of risky high-net worth taxpayers, and working with credible paid informants.
Collaboration with international partners is crucial to detecting and addressing those who are evading and avoiding paying their fair share. The CRA and other tax administrations from around the world have been collaborating and exchanging information on offshore accounts for years; this collaboration has only intensified since the media coverage of the Panama Papers. This work has delivered significant results and has laid the foundation for future collaborative work, including addressing other data leaks.
With regards to the Panama Papers as of September 30, 2017, the CRA has 123 audits involving both participants and facilitators underway, and several criminal investigations are ongoing. In the event that further details come to light, CRA will not hesitate to investigate and take further action as warranted.
JITSIC - or the Joint International Taskforce on Shared Intelligence and Collaboration - brings together 37 of the world's national tax administrations that have committed to more effective and efficient ways to deal with tax avoidance. The CRA is a fully participating member of JITSIC.
Following its work on the Panama Papers, JITSIC’s member countries already have:
- a shared understanding of the types of arrangements sought to be used for tax evasion and avoidance, and how to continue to detect them;
- the tools and structures in place to analyze data sets and to disrupt intermediaries that pose a high risk to them;
- improved practices in exchanging information within established legal frameworks; and,
- an agreed collaborative approach (and established capability) for a fast, effective and coordinated multilateral response to any future data releases.
INTERNATIONAL TRADE
MDIC. StatCan. 2017-11-06 balança comercial brasielira outubro canadá setembro
DOCUMENT: https://drive.google.com/file/d/1B6JY0hTX85o5Ct0ItC4-6crPy6xWnrA1/view?usp=sharing
Global Affairs Canada. November 5, 2017. International Trade and Foreign Affairs Ministers to travel to Vietnam to attend APEC Leaders’ Week
Ottawa, Ontario - Pursuing free, fair and progressive trade, and strengthening relationships with the economically vibrant Asia-Pacific region is a priority for Canada and important for creating more middle-class jobs for Canadians.
The Honourable Chrystia Freeland, Minister of Foreign Affairs, and the Honourable François-Philippe Champagne, Minister of International Trade, today announced that they will attend the 2017 Asia-Pacific Economic Cooperation (APEC) Leaders’ Week from November 8 to 11, 2017, in Da Nang, Vietnam.
While at APEC, the Ministers will work to advance free trade priorities of mutual interest in the Asia-Pacific region and opportunities for Canadians in fast-growing markets.
At the 29th APEC Ministerial Meeting on November 8, the Ministers will engage their counterparts on how progressive trade can help build a stronger middle class, and ensure that the benefits of an open global trading environment are fairly distributed and enrich everyone, particularly the middle class and those working hard to join it.
Minister Champagne will participate in discussions with business leaders to highlight trade and investment opportunities for Canadian small and medium-sized enterprises. Canadian entrepreneurs, farmers and producers have unparalleled opportunities to capitalize on our diversity and ensure the future prosperity of their families.
On the margins of APEC, Minister Freeland will meet with counterparts from other APEC member economies to advance Canada’s foreign policy priorities in the Asia-Pacific, including the ongoing humanitarian and security crisis in Rakhine, Myanmar, the situation with North Korea, and reaffirmation of Canada’s strong commitment to international cooperation and a rules-based international order.
Both ministers will support Prime Minister Justin Trudeau during the APEC Economic Leaders’ Meeting on November 10 and 11.
Quotes
“Canada is a Pacific nation, and we are committed to expanding Canada’s relations with Asia-Pacific countries. APEC Leaders’ Week in Vietnam is an important opportunity to engage with partners on issues of bilateral and global importance, including gender equality and human rights, and on the ongoing and deeply concerning situations in Myanmar and North Korea.”
- Hon. Chrystia Freeland, P.C., M.P., Minister of Foreign Affairs
“Canada’s engagement at APEC reinforces our commitment to fostering open markets, creating well-paying middle-class jobs, and helping businesses, especially women-owned small and medium-sized enterprises, succeed in international markets. Recognizing that we must make trade work for people, Canada has adopted a progressive trade approach by supporting policies and agreements that contribute more meaningfully to broader economic, social and environmental policy priorities in the interests of Canadians.”
- Hon. François-Philippe Champagne, Minister of International Trade
- Canada is a founding member of APEC, which was established in 1989 and has become the most important economic forum in the Asia-Pacific region. APEC’s primary purpose is to facilitate economic growth and prosperity in the region, with the vision of creating a seamless regional economy.
- APEC's 21 member economies account for more than 60% of global GDP and are home to 39% of the world’s population. Four of Canada’s top five trading partners are APEC members (the U.S., China, Mexico and Japan).
- APEC partners accounted for more than 84% of Canada's total merchandise trade in 2016. Foreign direct investment from APEC economies in Canada was $468.8 billion in 2016.
- APEC provides Canada with an opportunity to strengthen trade and economic ties with some of the Asia-Pacific region’s most dynamic economies.
- Vietnam has become Canada’s largest trading partner in the Association of Southeast Asian Nations region. In 2015, Vietnam became Canada’s largest trading partner in Southeast Asia when two-way merchandise trade between Canada and Vietnam hit $4.7 billion. Trade between the two countries grew to $5.5 billion in 2016.
- In July 2017, Canada hosted the third annual APEC Business Advisory Council meeting in Toronto.
See also:
Asia Pacific Economic Cooperation: http://www.international.gc.ca/apec/index.aspx?lang=eng
Canada in Vietnam: http://www.canadainternational.gc.ca/vietnam/index.aspx?lang=eng
Canada and Asia-Pacific Trade: http://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/tpp-ptp/index.aspx?lang=eng
ALUMINUM
The Globe and Mail. 6 Nov 2017. Reynolds set to close Alcan foil plant in Toronto. Foil: Deal part of aluminum-industry consolidation
GREG KEENAN
Reynolds is one of the many, many examples [of deindustrialization] in and around Toronto that have disappeared. [It] paid fairly good wages, had good benefit plans, pension plans, people worked there 30, 40 years. Omero Landi Area co-ordinator for the United Steelworkers of Canada
A Toronto plant that makes the Alcan brand of aluminum foil used in millions of kitchens across Canada will be closed despite performing “exceptionally well.” Reynolds Consumer Products Inc. will close a plant formerly owned by Alcan by the end of next year, confirming fears employees expressed when Canadian regulators approved the takeover. Reynolds bought the factory in 2014. The decision will eliminate about 100 unionized jobs, in the latest demonstration of how globalization has battered Canada’s manufacturing sector.
“It is a business decision to consolidate our operations,” said a memo addressed to “Dear RCP Employees” that quoted Ken Lane, Reynolds’ business unit president. Reynolds makes a product called Reynolds Wrap that competes with Alcan foil.
“These decisions are very difficult, particularly when they affect an operation that has performed exceptionally well,” the memo quoted Mr. Lane as saying.
The memo said Alcan foil will still be made and sold in Canada, but by a contract provider. Production of Alcan foil containers will be shifted to a plant in Wheeling, Ill. “This is a business decision made on production needs and reducing overall operating costs,” the memo said.
An e-mail from the company’s head office in Lake Forest, Ill., said production of Alcan foil is “transitioning to an affiliated Reynolds facility in London, Ont.”
The Toronto plant currently has about half as many workers as it did when Reynolds took it over from
Novelis Inc. three years ago. Six months before the $35-million deal was approved by the federal Competition Bureau, employees said they feared the plant would close and their jobs would disappear.
“It has been downsizing over a period of time,” said Omero Landi, an area co-ordinator for the United Steelworkers of Canada, which represents the plant’s hourly workers.
It is another sign of “the deindustrialization” of Toronto,
Mr. Landi said.
“There’s the economic pressure to do it in other places, there’s the economic pressure to consolidate operations, there’s the economic pressure of selling the land for what it’s worth.”
The plant is in southwest Toronto, which was a thriving industrial hub for much of the first 75 years of the 20th century. Manufacturing has not abandoned the area, but “for sale” and “for lease” signs are prevalent.
“Reynolds is one of the many, many examples in and around Toronto that have disappeared. [It] paid fairly good wages, had good benefit plans, pension plans, people worked there 30, 40 years,” Mr. Landi said.
The labour contract with the company calls for two weeks of severance pay for every year of service for employees who have worked at the plant for five years or more, he said. The maximum severance is 52 weeks.
The union is scheduled to meet with company officials on Tuesday to discuss the closing and severance for employees who worked there less than five years, he said.
Novelis was spun off from Alcan Inc. in 2005 after anti-trust regulators raised concern about reduced competition when Alcan bought rival Pechiney SA of France.
That deal was part of a global aluminum industry consolidation. Alcoa Inc. launched a hostile bid for Alcan in 2007 that eventually led to the takeover of the Montreal-based aluminum giant by Rio Tinto PLC.
Rio Tinto licensed the Alcan name for aluminum foil to Novelis. Then Hindalco Industries Ltd. of India bought Novelis.
A year after those deals, Alcoa sold its Reynolds consumer products business to Rank Group Ltd., the private investment company of New Zealand billionaire Graeme Hart.
The takeover of the Toronto plant and other Novelis operations in Canada by Reynolds was approved by the Competition Bureau in May, 2014.
AGRICULTURE
StatCan. 2017-11-06. Farm product prices, September 2017
Prices received by farmers in September for grains, oilseeds, specialty crops, potatoes, cattle, hogs, poultry, eggs and dairy products are now available at the provincial level in CANSIM.
For example, the price of hogs in Ontario was $80.92 per hundredweight in September, down 20.1% from August but up 1.1% from September 2016 when the price was $80.02 per hundredweight.
Meanwhile, the price of wheat (excluding durum) in Saskatchewan was $239.08 per tonne in September, up 5.0% from August and up 18.8% from September 2016 when the price was $201.32 per tonne.
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171106/dq171106a-eng.pdf
GOVERNOR- GENERAL
The Globe and Mail. 6 Nov 2017. A lesson for the new Governor-General
DAVID MULRONEY, President of the University of St. Michael’s College
Julie Payette, newly installed as the Queen’s representative in Canada, apparently didn’t get the memo that rulers shouldn’t insult the people they rule, David Mulroney writes. Payette missed the memo that rulers shouldn’t debase the people, as she seemingly mocked religious believers in a speech last week.
BLAIR GABLE/THE GLOBE AND MAIL
Canada’s new Governor-General, Julie Payette, seems to be endorsing a kind of scientism, the notion that the only valid means of understanding is through science.
The succession to the throne of King George V in 1910 is memorable not so much for what the new monarch said as for what he didn’t say. In the wake of activism by Catholics, including many Canadians, throughout the empire, the King broke with tradition by abandoning a nasty anti-Catholic declaration that his predecessors had dutifully intoned for more than two centuries. The formula, which attacked (and misinterpreted) Catholic beliefs about the mass, the Virgin Mary and the sacrament of the Eucharist, was replaced by a text, still in use today, that simply affirms the Protestant succession.
The change owes much to then British prime minister H. H. Asquith’s astute reading of the political tea leaves. He understood the importance of keeping a religiously diverse empire united as war clouds gathered over Europe. But the change also marked a milestone in the steady evolution of democratic governance in Britain and its dominions. It advanced the idea that, in a healthy society, the respect that necessarily links the ruler to those who are ruled flows both ways.
Put bluntly, it’s not okay for the King to insult his subjects.
Julie Payette, newly installed as the Queen’s representative in Canada, seems to have missed this page in her briefing book. In a recent speech, she mocked a short list of what she considers to be modern heresies. Aside from the surprising fact the Governor-General would choose to commence her time in office with an attack on some of her fellow Canadians, the comments are particularly noteworthy because her targets appear to include the many Canadians who are religious believers.
During one of her first speeches in the role, the Governor-General told a room of scientists in Ottawa last week that, incredulously, some people still question the beginnings of life: “Can you believe that still today in learned society, in houses of government… we are still debating and still questioning whether life was a divine intervention or whether it was coming out of a natural process let alone, oh my goodness, a random process.
“And so many people – I’m sure you know many of them – still believe, want to believe, that maybe taking a sugar pill will cure cancer, if you will it!”
Ms. Payette seems to be endorsing a form of what is commonly referred to as scientism, the notion that the only valid means of understanding anything and everything is via science and the scientific method. The reasoning here is more than a little circular. If our understanding of the world is limited to what is measurable and quantifiable, it is not surprising that we are forced to deny the possibility of the transcendent. This leaves no room for the proposition that we can approach truth through disciplines like philosophy and theology, or that we might be similarly enlightened by our appreciation of art, literature or music.
The Governor-General also seems to be dismissing the possibility that human reason might itself lead us to ask whether the answer to that ultimate question, why there is something rather than nothing, is adequately addressed by a form of causation that she describes as “random.”
We should also acknowledge that scientism itself has a grim history when conscripted by modern governments. As the totalitarian regimes of the 20th century showed, this can lead to a ruthless utilitarianism that strips men and women of their humanity. Even Canada was not exempt from an early 20th-century flirtation with eugenics, a kind of selective breeding that aimed to eliminate classes of people deemed undesirable. Its proponents, some of whom are still lionized today, invoked science to mask racism and intolerance. Indeed, the canard that the Catholic Church, which gave birth to the modern university, is somehow against science, gained new credence in the late 19th and early 20th centuries precisely because of Rome’s principled and public opposition to eugenics.
It is also disappointing that, in the wake of the Governor-General’s remarks, Prime Minister Justin Trudeau defended her in the name of science, rather than coming to the defence of the many Canadians who are troubled by what she said. He seems oblivious to the fact that the very virtues he himself so regularly extols – things like compassion, tolerance and inclusivity – owe far more to Mother Teresa and Pope Francis than they do to Charles Darwin and Richard Dawkins.
More puzzling, you would think that, as a politician, Mr. Trudeau would know that denigrating a large swath of the electorate – think here of Hillary Clinton and her “basket of deplorables”– is a bad idea.
Former governor-general David Johnston, himself a distinguished scholar, was wonderfully able to connect with Canadians, regardless of their beliefs. Ms. Payette could take a lesson from him and, for that matter, from King George V. Mr. Trudeau might want to brush up on his Asquith.
The Globe and Mail. 6 Nov 2017. Payette’s secular spiel jeopardizes her impartiality
JOHN IBBITSON, Columnist
Julie Payette’s transgression is more serious than some suppose. In a speech last week, she celebrated secularism and science over faith and superstition in tones so derisive that the Conservative Leader protested and the Prime Minister rose to her defence, which only made things worse.
In presenting herself as an enlightened governor-general, did Ms. Payette inadvertently cast herself as a Liberal governor-general? If the next election produces an unstable House, can we count on her to rule impartially on who should be asked to form a government, or whether and when to accept a recommendation to prorogue or dissolve Parliament?
The governor-general exists to resolve such impasses. With her remarks on science and superstition, Ms. Payette has made it harder to credibly fill that role.
We don’t need to rehash exactly what the Governor-General said last Wednesday, because it wasn’t her opinions that got her into trouble so much as her tone. “Can you believe that still, today, in learned societies and houses of government? …” and “that we are still debating and still questioning …” and “so many people, I’m sure you know them, still believe, want to believe …” Here was a Governor-General mocking those who do not share her world view.
In rising to her defence, Mr. Trudeau actually deepened the hole.
“We are a government grounded in science,” he told reporters. Ms. Payette “has never hidden away her passion for science … and I applaud the firmness with which she stands in support of science and the truth,” he added.
With those comments, Mr. Trudeau allied the Liberal Party with the Governor-General, in essence saying both celebrate the power of science over superstition.
Conservative Leader Andrew Scheer, not wanting to be seen criticizing the Governor-General directly, instead criticized Mr. Trudeau for coming to her defence.
“It is extremely disappointing that the Prime Minister will not support Indigenous peoples, Muslims, Jews, Sikhs, Christians and other faith groups who believe there is truth in their religion,” he said on Facebook.
So now we have the Liberals: We are the party of reason and the scientific method and the GovernorGeneral is with us. And the Conservatives: We are the party that respects rights of all people to worship as they choose without being judged – in particular, by the Prime Minister and the Governor-General.
A stark divide. A wedge issue, even. What on Earth was the GG thinking?
These are early days. We should assume that Ms. Payette received unsound advice, or failed to follow the advice she received. Someone in the Prime Minister’s Office is no doubt having a quiet word with someone at Rideau Hall, so that this mistake is not repeated.
But Ms. Payette needs to get the hang of this job, quickly. Yes, the next election is two years away, but consider: What if the NAFTA talks fail and Mr. Trudeau decides on a snap election to obtain a mandate for whatever follows? What if the voters return a hung Parliament?
After the BC Liberals were defeated in the legislature in the wake of last May’s election in that province, Lieutenant-Governor Judith Guichon rejected Christy Clark’s advice to dissolve the legislature, and instead invited NDP Leader John Horgan to form a government.
Throughout those tense days, no one questioned Ms. Guichon’s impartiality. If Ms. Payette is forced to make a difficult choice when the House meets after the next election, will all Canadians trust her impartiality?
The Governor-General speaks for everyone – believer and non-believer, people of science and people of faith and people of both. She must represent all, regardless of what she might think of some.
Julie Payette should be very careful with what she says and how she says it from here on in.
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LGCJ.:
