CANADA ECONOMICS

BOMBARDIER

The Globe and Mail. 19 Dec 2017. The two airplane makers take their battle to a U.S. trade hearing that has the last word on the dispute. U.S. plane maker contends subsidized C-Series puts Max7 at ‘extreme risk’
ADRIAN MORROW, WASHINGTON
NICOLAS VAN PRAET, MONTREAL

Boeing Co. is accusing Bombardier Inc. of squeezing the U.S. plane maker’s business – all but killing one of its models – by dumping jets subsidized with billions of dollars of Canadian and British corporate welfare into the American market.

The latest skirmish in the battle between the two companies – itself a proxy for the larger Trump administration fight over economic protectionism – played out at an acrimonious hearing of the International Trade Commission on Monday. The quasi-judicial body has the last word on whether Bombardier will face punitive tariffs that will effectively keep its new C Series jets out of the United States.

Kevin McAllister, chief executive of Boeing Commercial Airplanes, told the commission that airlines have been pressuring him to slash prices to match the deal Bombardier gave Delta Air Lines Inc., in which he alleged the airline paid less than $20-million (U.S.) for each C Series jet.

“They have already injured Boeing and our injury is certain to increase unless you ensure that Bombardier competes on a level playing field,” he told the commission. “No new airplane rationally priced … could compete at that price point.”

Mr. McAllister said one of his company’s models, the 737 Max7, was “at extreme risk” of being driven out of the market by Bombardier.

Boeing’s case against Bombardier, launched in the spring, has found a receptive audience in the Trump administration. The Department of Commerce slapped 300per-cent duties on the C Series in a preliminary ruling in October. Commerce is widely expected to confirm this order in a final determination Tuesday. The ITC will decide whether to keep or overturn the duties in a ruling expected Feb. 9. Ottawa retaliated earlier this month by pulling the plug on an order for Boeing Super Hornet fighter jets. The fight has unfolded at the same time as Canada, the United States and Mexico renegotiate the North American free-trade agreement at Donald Trump’s behest. The talks are at loggerheads, with Canadian and Mexican negotiators rejecting U.S. demands for tough new protectionist measures in the pact.

Much of Monday’s hearing revolved around the narrower issue of whether the C Series actually represents a direct competitor to the Max7. Bombardier, as well as the Canadian and British governments, argued that the two planes are so different, Boeing cannot claim that its lack of Max7 sales is a result of Bombardier.

Kim Darroch, Britain’s ambassador to the United States, told the hearing that the C Series niche is “a market in which Boeing does not at present compete and has no plans to compete.”

He also accused Boeing of hypocrisy in bringing a case based on corporate welfare. “This claim is made when Boeing itself enjoys billions of dollars of U.S. government subsidies for its aircraft. Between 1989 and 2006, Boeing received more than $5.3-billion of U.S. government support.”

Company specifications for each aircraft outlined on their websites confirm they do not overlap on seat count. Bombardier says the CS100 can carry up to 135 passengers in its densest configuration. Boeing says the Max7 starts at 138 seats and can go up to 172.

Richard Aboulafia of aerospace consultancy Teal Group told The Globe and Mail that customers would not be shopping for both aircraft. “Either you need a 100-seater or you need a 130-seater. It’s a significant difference,” he said.

Bombardier has cut a deal to hand control of the C Series to Airbus Group SE, a move that will see C Series planes assembled at the French company’s plant in Mobile, Ala. Bombardier has argued the resulting U.S.-made airplane won’t be subject to any import duties. Boeing on Monday argued this move was merely a ruse.

“There are no concrete plans – just drawings. There is no construction. There are no legal commitments – just words,” said Robert Novick, one of the company’s lawyers.

David MacNaughton, Canada’s ambassador to Washington, said Boeing was taking advantage of the wave of protectionist populism in the United States to stomp a potential rival. Because of North America’s integrated economy, he said, 23,000 U.S. jobs depend on Bombardier’s supply chain.

“The anti-trade rhetoric, it has given U.S. companies the permission and others the permission to take actions that they wouldn’t have taken before,” he told reporters following his presentation to the commission.

Canada’s explicit backing of Bombardier in the dispute has been a way to send a broader message of toughness to Washington in the face of the protectionist tide.

“I have said to the Americans at all levels over the last several months: We are fair, we’re friendly, we’re your closest neighbour and your best friend,” Mr. MacNaughton said. “And we’re hockey players.” BOEING (BA) CLOSE: $296.14 (U.S.), UP $2.20 BOMBARDIER (BBD.B) CLOSE: $3.10, UP 3¢

REUTERS. DECEMBER 18, 2017. Boeing-Bombardier spat puts U.S.-Canadian trade deals in spotlight
Alwyn Scott, Alana Wise

WASHINGTON (Reuters) - Boeing Co and Bombardier Inc traded barbs on Monday over the U.S. planemaker’s claim that its Canadian rival benefited from billions of dollars in illegal government subsidies and dumped its newest jetliner in the United States at below cost.

At a contentious hearing of the U.S. International Trade Commission (ITC), Boeing accused Bombardier of harming its ability to sell 737s in the U.S. market, in one of the final stages of a bitter trade dispute due to conclude in February.

Bombardier argued Boeing’s large 737 order book shows there has been no adverse impact from its CSeries jet and that the U.S. planemaker does not manufacture a jet that competes with the new model.

“Boeing is making money hand over fist. And with a backlog of 737 orders years into the future, there are no signs of difficulty on the horizon,” Bombardier representative Peter Lichtenbaum said.

If the ITC sides with Boeing, as it has so far, it could effectively keep U.S. airlines from using Bombardier’s CSeries jet by imposing duties of nearly 300 percent, one of the largest ever imposed for a market-based economy, Boeing said.

“These investigations have already established beyond question that Bombardier has taken billions of dollars in illegal government subsidies to prop up its C Series program. The C Series would not even exist at this point but for those subsidies,” Boeing said in a statement emailed during Bombardier’s panel remarks.

The U.S. Department of Commerce was due to finalize the proposed duties on Monday or Tuesday.

If Bombardier wins, Chicago-based Boeing says its smallest 737 model could face unfair competition from the CSeries for decades.

Canada’s ambassador to the United States, David MacNaughton, warned that a positive finding of material harm to Boeing by the ITC could represent a possible violation of World Trade Organization agreements and prompt a more formal complaint with the global trade group.

“Boeing’s assertion that future imports from Canada threaten to cause material injury is necessarily based on just the type of ‘speculation and conjecture’ that is prohibited under both U.S. and international law,” MacNaughton told the panel.

Canada earlier this month scrapped plans to buy 18 Boeing Super Hornet fighter jets, underlining Ottawa’s anger over the trade challenge. Boeing has said it considered all potential risks before deciding to launch its trade case.

The case stems from an April 2016 sale of 75 CSeries jets to Delta Air Lines Inc. Boeing claims Delta paid $20 million per plane, well below an estimated cost of $33 million and what Bombardier charges in Canada.

“A single large order, like Bombardier’s sale to Delta, takes years of demand out of the market. In this industry, if we lose a sale, it’s gone forever. That’s years of lost production and deliveries for Boeing, years of lost work for our employees, and years of lost work for our U.S. suppliers,” Boeing Executive Vice President Kevin McAllister said.

European planemaker Airbus SE, which is buying a controlling stake in the CSeries program and has a competing plane, has said it would add a second CSeries production line to a factory in Alabama, making it a U.S. product for domestic airlines.

Boeing says that should not negate the duties because Airbus and Bombardier would import fuselages and wings and merely be assembling in the United States.

But Bombardier argues that Boeing’s case is against full imports of airplanes, not parts, so it does not apply to imports of wings, fuselages and other pieces. Bombardier says more than half of the value of CSeries content comes from the United States, including engines by Pratt & Whitney.

DEFINING DEAL

Boeing says the Delta deal was market defining because other airlines will demand the same low price and the planes will be in service for decades.

All jetliners are sold below cost initially because airlines are taking a risk on a new jet model and upfront development costs are high, Bombardier argues. The cost drops over time as the factory produces more planes and gets better at making them.

The U.S. planemaker said Bombardier failed to cooperate in a U.S. investigation providing pricing information to the United States.

Bombardier said it turned over the Delta sales contract but cannot accurately estimate the cost and price of those planes because they are being built and delivered in coming years.

Boeing says the CSeries benefited from hundreds of millions of dollars in launch aid from the governments of Canada and Britain and a $1 billion equity infusion from the province of Quebec.

Those subsidies are not prohibited because they are either market-based investments or repayable loans, Bombardier said.

Bombardier also argues that Boeing and Airbus do not compete with the CSeries because their planes are larger and have more range. The CSeries’ more direct competitors are smaller jets made by Embraer Mitsubishi.

The CSeries poses no threat to the U.S. aerospace industry because building it at the Airbus factory in Alabama would create U.S. jobs and generate billions of dollars in business for U.S. aerospace companies, Bombardier said.

Reporting by Alwyn Scott in New York and Alana Wise in Washington; Editing by Tom Brown

US - CANADA

The Globe and Mail. 19 Dec 2017. Tillerson, Trudeau to plan meeting on North Korea. Secretary of State will also meet with Freeland about international talks coming to B.C.
MICHELLE ZILIO, OTTAWA

U.S. Secretary of State Rex Tillerson will travel to Ottawa on Tuesday, where he will meet with Prime Minister Justin Trudeau and iron out the details of a major international meeting on North Korea to be held in Vancouver early next year.

Mr. Tillerson will also meet with Foreign Affairs Minister Chrystia Freeland during his first visit to Canada as Secretary of State. Officials say he and Ms. Freeland will discuss the North Korea meeting. Earlier this month, Reuters reported that Canada and the United States will co-host the meeting in Vancouver in January to seek a non-military solution to the nuclear crisis.

Mr. Tillerson’s visit comes amid an apparent rift between him and U.S. President Donald Trump on the U.S. approach to North Korea, and weeks after reports that the White House has a plan to force the top diplomat out.

Days after Mr. Tillerson committed to talk to North Korea “without precondition,” he retreated to Mr. Trump’s position last week, saying the North must “earn its way” to negotiations. The change came after The New York Times reported last month that the White House was planning to replace Mr. Tillerson with CIA director Mike Pompeo.

However, Mr. Tillerson does not appear to be going anywhere or backing away from the North Korean issue.

Speaking on condition of anonymity on Monday, a senior state department official said the coming meeting on North Korea will be a “major topic of conversation” between Mr. Tillerson and Ms. Freeland. The official did not say exactly when in January the Vancouver conference will take place.

“It will include South Korea, Japan and other key affected countries to discuss how the global community writ large can deal with North Korea’s threat to international peace,” the official said.

Mr. Tillerson and Ms. Freeland announced the meeting in November after North Korea said it had carried out a missile test that put the U.S. mainland within reach. A Canadian government official told The Globe and Mail the meeting grew out of conversations between Ms. Freeland and Mr. Tillerson about creating a political dialogue that was not just focused on exerting pressure on North Korea, but also trying to find a diplomatic solution.

On the diplomatic front, Mr. Trudeau has said Canada could play a key role in defusing the situation in North Korea by working with Cuba. Mr. Trudeau said he discussed the possible course of action with Cuban President Raul Castro when he travelled to Havana last year. The state department official did not say if Mr. Tillerson will discuss the possibility of Canada forming a back channel to North Korea through Cuba with Mr. Trudeau or Ms. Freeland.

The state department official said Mr. Tillerson will also discuss border security and the continuing crises in Ukraine and Venezuela with Ms. Freeland.

The North American freetrade agreement is also expected to come up, even though the renegotiation is not technically the Secretary of State’s file. Mr. Tillerson will also meet with the cabinet committee on Canada-U.S. relations.

NAFTA

THE GLOBE AND MAIL. DECEMBER 19, 2017. NAFTA TALKS. U.S. auto-content NAFTA demands based on faulty data: study
GREG KEENAN, AUTO INDUSTRY REPORTER

U.S. demands in NAFTA negotiations for higher levels of U.S. and North American content in automobiles are based on faulty data, the Bank of Nova Scotia says.

The share of North American parts in vehicles assembled in Canada and Mexico has grown since 2011, a new study by the bank says, disputing U.S. assertions that Asian and European auto parts have displaced those from North America by flooding into the U.S. market through a so-called NAFTA back door.

The study, issued Tuesday, provides new support for Canadian and Mexican negotiators, who have rejected outright U.S. demands that 85 per cent of the content of a North American vehicle come from within NAFTA and that 50 per cent of the value of vehicles imported into the United States from Canada and Mexico consist of U.S. parts.

"The U.S. proposal to tighten NAFTA's rules of origin on vehicles is an ill-conceived solution in search of a problem. It would be an unnecessary restriction on the North American auto sector that would render it less competitive against its global peers," the study maintains.

"Rather than helping the U.S. auto industry, tighter NAFTA rules of origin on autos would likely make the sector more inflexible and less competitive."

That comment echoes those made by auto makers and auto-parts companies, which have pointed out that a low-cost region where parts with high labour content can be manufactured is essential in the three-nation trading bloc so that they can compete with rivals in Asia and Europe that also benefit from being able to manufacture in low-cost countries.

The bank estimates that North American content in vehicles assembled in Canada and Mexico has risen to 70 per cent and 74 per cent respectively since 2011.

NAFTA content in U.S.-made vehicles is estimated to have declined to 65 per cent from 71 per cent. ​ Offshore-based auto makers now account for 60 per cent of U.S. vehicles, compared with 45 per cent in 2011.

A U.S. Commerce Department study that is believed to underpin U.S. demands for higher content argued that North American content declined since 2011, although that study was based on data for the years before 2011.

The Bank of Nova Scotia numbers for Canadian and Mexican parts content show that vehicles assembled in the two countries are well above the current requirement that vehicles contain 62.5-per-cent content from the three NAFTA countries in order to qualify for duty-free shipment within the trade zone.

About 80 per cent of vehicle parts sold in North America originate from one of the NAFTA countries, the bank said.

It estimates U.S. parts account for 50 per cent of the North American components market overall, hitting that number in Canada, 60 per cent in U.S.-assembled vehicles and 35 per cent in vehicles built in Mexico.

CUBA

REUTERS. DECEMBER 19, 2017. Cuba boosts trade ties with Cold War ally Russia as U.S. disengages
Sarah Marsh, Nelson Acosta

HAVANA (Reuters) - Boxy Russian-built Lada automobiles still rattle around Cuba, growing more decrepit by the year, a reminder of vanished Soviet patronage for the Communist-led island.

But next month, more than 300 shiny new Ladas are slated to roll onto Havana’s potholed streets, the first in more than a decade. Their manufacturer Avtovaz, Russia’s biggest carmaker, says it hopes to ramp up exports, thanks to financing from Russian government development bank VEB.

Flush with state funding, Avtovaz and other Russian companies are once again increasing sales to the Caribbean isle. It is part of a broader move by Moscow to renew commercial, military and political ties just as the U.S. government is retreating from Cuba under Republican President Donald Trump.

Russian exports to Cuba jumped 81 percent on the year to $225 million in the January-September period, official Russian data shows. That is just a quarter of the exports of Cuba’s chief merchandise trading partner, China, but growing fast.

Russian state oil major Rosneft in May resumed fuel shipments to Cuba for the first time this century. The company’s head met with Cuban President Raul Castro in Havana on Saturday, the latest sign the two countries are readying a major energy agreement. The nations in the past have discussed increased deliveries of Russian oil to the island and development of Cuba’s offshore oil fields.

That would be a major assist for Cuba amid slumping shipments of cheap fuel from its troubled socialist ally Venezuela.

Last month, private Russian company Sinara delivered the first of 75 locomotives worth $190 million ordered by Cuba in 2016. Russia’s largest truck maker KAMAZ has also stepped up exports to Cuba.

Negotiations for rail lines and other infrastructure are in the works.

“We can call this period a renaissance,” Aleksandr Bogatyr, Russia’s trade representative in Cuba, said in an interview. He forecast bilateral trade could grow to $350 million to $400 million this year, one of its highest levels in nearly two decades, up from $248 million in 2016.

Russia’s Cuba offensive comes as Trump has halted efforts by his Democratic predecessor Barack Obama to normalize U.S.-Cuba ties and ease the decades-old U.S. trade embargo.

In June, Trump ordered tighter travel and commercial restrictions again, disappointing U.S. businesses that had hoped to capitalize on the detente. In September, his administration slashed U.S. embassy staffing in Cuba.

Moscow is seizing on that rollback as a way to undermine U.S. influence in its own backyard, some foreign policy experts say.

“Russia sees it as a moment to further its own relationship with Cuba,” said Jason Marczak, Director at the Adrienne Arsht Latin America Center.

“The more the Russian footprint increase in Cuba, the more that will reinforce hardened anti-U.S. attitudes and shut out U.S. businesses from eventually doing greater business in Cuba.”

MONEY SPEAKS

Throughout the Cold War, Moscow propped up Fidel Castro’s revolutionary government, providing it with billions of dollars worth of cheap grain, machinery and other goods. Those subsidies disappeared with the 1991 collapse of the Soviet Union. Trade plunged.

Under Russian President Vladimir Putin, who longs to return his nation to superpower status, Moscow over the past decade has sought to revive relations with Latin America, particularly with countries wary of U.S. influence.

The turnaround with Cuba got a boost in 2014 when Russia forgave 90 percent of Cuba’s $35 billion Soviet-era debt. It also started providing export financing to Russian companies looking to sell to the cash-strapped island.

The help has been cheered in Cuba, where Raul Castro is due to step down next year, marking the departure of the generation that led the 1959 Cuban Revolution.

Russia may lie half a world away from Cuba, but traces of its historic ties with the Caribbean’s largest island are everywhere. Older generations learned Russian and studied in the Soviet Union. At a recent trade fair in the capital, Cubans spontaneously sung along to the folk music played at the opening of Russia’s pavilion.

Moskvich and Lada cars, Ural motor-bikes and Kamaz trucks chug along the streets. Most Cuban farm equipment is from the former Soviet Union. That legacy alone has sustained some Russian trade.

“We sell spare parts for ground transport, some planes, agriculture, construction,” said Russian businessman Igor Leonov. He set up his import company, Ces Co. Ltd, in Cuba nearly thirty years ago and says there is plenty of demand.

The decades-old U.S. trade embargo has also forced Cuba to remain loyal to some Russian manufacturers. The island upgraded its Soviet-era fleet in the 2000s with Russian-built Tupolev, Antonov and Ilyushin planes.

Nadezhda Lesova, an executive at the Russian Export Center in Moscow, said her organization regarded Cuba as a “strategic region.” She said the center is providing support for exports to Cuba, including insurance, loans and subsidies, worth around 430 million euros ($508.60 million).

HIGH SPEED TRAIN

Some major deals are under discussion.

State-owned monopoly Russian Railways (RZD) is negotiating to upgrade more than 1000 km of Cuban railroads and install a high-speed link between Havana and the beach resort of Varadero, in what would be Cuba’s biggest infrastructure project in decades.

“It is expected the deal will be worth 1.9 billion euros ($2.26 billion) and will be signed by the end of the year,” Oleg Nikolaev, Deputy Chief Executive Officer at the RZD subsidiary RZD International, told Reuters.

In October, oil firm Rosneft said it was looking at modernizing the island’s Cienfuegos oil refinery.

But the optimistic talk could be overblown. Venezuela and China have announced investments in Cuba that came to naught, largely due to the complications of doing business in Cuba.

Some Russian companies are already smarting from Cuba’s cash crunch. Ces Co. Ltd, the parts importer, said Cuba was behind on $9 million in payments.

And it is unclear how long Russia will continue to finance exports, with its own economy struggling amid low oil prices and Western sanctions.

Russia’s economic constraints are one reason analysts are dubious that Moscow will make good on recent proposals to re-open a former base in Cuba. Shuttered in 2001, the so-called Lourdes base was used for electronic surveillance of the United States.

Still, U.S. military experts are concerned that Russia could leverage increased economic influence in Cuba to step up its military and espionage activities on the island.

Sixteen high-ranking military officers wrote an open letter to the Trump administration in April asking it to continue Obama’s opening with Cuba for national security reasons.

“If Russia is willing to offset oil supplies from Venezuela and some other things, maybe Cuba doesn’t have much of a choice but to let them re-establish political warfare operations there,” retired U.S. Army Brig. Gen. David L. McGinnis, one of the signatories, said in an interview with Reuters.

Paul Hare, a former British ambassador to Cuba, sees Russia’s renewed interest in Cuba as geostrategic.

“It’s hard to see a business interest, as Cuba can’t pay,” said Hare, who now lectures at Boston University’s Pardee School of Global Studies. “The Russians will do just as much as they want to prop up Cuba so as to be a nuisance to the United States.”

Reporting by Sarah Marsh and Nelson Acosta in Havana; Additional reporting by Vladimir Soldatkin and Andrew Osborn in Moscow; Editing by Daniel Flynn and Marla Dickerson

ENERGY

THE GLOBE AND MAIL. REUTERS. DECEMBER 19, 2017. Nebraska regulators deny TransCanada request to amend Keystone application

LINCOLN, NEBRASKA - Nebraska's Public Service Commission on Tuesday denied TransCanada Corp's motion to amend its application for a route for the proposed Keystone XL pipeline through the state, a move that the company had hoped would head off legal challenges against the project.

The commission approved a path for Keystone XL last month, but it was not for the preferred route cited in the application. Instead the commission approved an "alternative mainline" route, a move pipeline opponents have said violated state statutes.

After the approval, TransCanada asked the commission if it could retroactively amend the route application, saying it hoped to prevent lawsuits.

REUTERS. DECEMBER 18, 2017. Oil rises on UK pipeline outage, U.S. supply caps gains
Alex Lawler

LONDON (Reuters) - Oil edged up towards $64 a barrel on Tuesday, helped by a North Sea pipeline outage, OPEC-led supply cuts and expectations that U.S. crude inventories had fallen for a fifth week.

But rising output in the United States has put a lid on gains. Shale production will rise to a record in January, according to a government forecast published on Monday, as higher prices encourage companies to pump more.

Brent crude LCOc1, the global benchmark, was up 20 cents to $63.61 a barrel at 1427 GMT. U.S. crude CLc1 gained 23 cents to $57.39.

The shutdown of the North Sea’s Forties pipeline since last week has supported Brent in particular, as Forties is the largest of the five crude grades underpinning the benchmark. Brent reached $65.83, its highest since mid-2015, on Dec. 12.

“This should ensure buying pressures remain at the fore of the Brent structure until the turn of the year at the very least,” said Stephen Brennock of oil broker PVM.

Ineos, the operator of the Forties pipeline, said on Tuesday it was moving forward with a preferred repair option and the timeframe for the fix remained two to four weeks starting from Dec. 11, the date of the shutdown.

Oil ticked up after reports that a missile was fired at the Saudi Arabian capital Riyadh from Yemen, but Saudi Arabia said it intercepted the missile and no casualties were reported.

“The market has not been doing very much and you do have headlines etcetera, but it doesn’t really change anything,” said Olivier Jakob, an analyst at Petromatrix.

A deal by the Organization of the Petroleum Exporting Countries and non-member producers including Russia to cut supplies to curb a supply glut that has built up since 2014 has also boosted prices.

OPEC and its allies have extended the agreement until the end of 2018 and Russia’s Rosneft ROSN.MM said on Monday it could be maintained beyond next year.

As a result of the cuts, oil inventories are falling globally and the latest weekly supply reports are expected to show a further reduction in U.S. crude inventories.

The first of these reports, from the American Petroleum Institute, is due at 2130 GMT on Tuesday. [EIA/S]

Still, rising U.S. production is countering lower supply elsewhere. U.S. shale output in January is forecast to increase by 94,000 barrels per day to 6.41 million bpd, according to the EIA’s monthly drilling productivity report.

To view a graphic on Global crude oil supply, demand balance click on this link reut.rs/2CRHqCH

Additional reporting by Henning Gloystein; Editing by Edmund Blair and Louise Heavens

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