CANADA ECONOMICS

CANADA - CHINA

The Globe and Mail. 11 Dec 2017. ARTICLE. Financial leaders urge patience on free-trade talks with China. China: Economic adviser to Ottawa sees ‘new chapter’ in trade prospects with Beijing amid improving conditions
JAMES BRADSHAW, BANKING REPORTER

Canadian financial leaders are praising federal efforts to open the flow of trade and commerce with China, and preaching patience as recent attempts to launch free-trade talks make slow progress.
Prime Minister Justin Trudeau’s trip to China ended in frustration last week as the two sides failed to strike a deal to formally start free-trade talks – which would be a first between China and a Group of Seven country.
But Bill Downe, who retired in November after a decade as Bank of Montreal’s chief executive officer and is advising Canada’s government on trade, believes the conditions for doing business in China are dramatically improving and that Canada’s willingness to show up and engage with Chinese officials “is absolutely essential.”
“It’s a long game,” Mr. Downe said in an interview while he was in Beijing in advance of Mr. Trudeau’s trip, adding: “I’m patient … I think we have to commend anyone who’s willing to undertake such a venture and recognize that the time to completion of some of these things is not bound by the electoral cycle.”
Trade talks with China have taken on new urgency as uncertainty grows that Canada will be able to reach an acceptable deal with the United States and Mexico to redraw the North American free-trade agreement. Yet, Canada’s overtures to China have also been met with healthy skepticism at home, where business leaders worry a deal might not meaningfully address existing obstacles to doing business in China, and could put pressure on Canada to compromise its values.
Mr. Downe is adamant that’s the wrong approach. “I feel sometimes I’m listening to an isolationist narrative about choosing to do business where good business can be done, which I think is problematic,” he said.
BMO is the only Canadian bank with a fully incorporated subsidiary in China, called BMO China Co., and it has roots in the country that date back to the 1800s, when the bank settled trade transactions in silver and gold.
During last week’s trip, business leaders from Canada and China joined a roundtable discussion with Mr. Trudeau, and Daniel Barclay, co-head of global investment and corporate banking at BMO Nesbitt Burns Inc., was in the room. He predicts that intensifying Canada’s trade flow with China will have “enormous value.”
“This will mean more growth for Canadian firms through increased exports, and expanded foreign direct investment will create more jobs,” Mr. Barclay said in an e-mailed statement.
Mr. Trudeau visited China little more than a month after President Xi Jinping tightened his control of China’s policymaking machine at the Communist Party’s 19th National Congress. And with China dealing from a position of strength, Canada’s insistence on standards around labour, the environment and gender rights as part of trade talks appears to have been a stumbling block.
In spite of those concerns, Mr. Downe thinks China’s regime hasn’t received the credit it deserves for cracking down on corruption, for its willingness to make commitments as part of the Paris climate accord, or for reining in GDP growth closer to 6 per cent annually, engineering “a soft landing from an economic growth rate that was not really sustainable.”
In the next five years, Mr. Downe expects Mr. Xi will establish new principles to encourage good governance in China, and that the rule of law in commercial matters will mature over time as it is tested by the courts.
“I think that’s what has materially changed the prospects for good business in the future,” Mr. Downe said. “I think this is a new chapter.”
Mr. Downe also sits on a NAFTA advisory council with the ear of Foreign Affairs Minister Chrystia Freeland, and said trade overtures to China are “complementary.”
“I’m optimistic that those [NAFTA] negotiations will result in some benefits,” he said. “And if an agreement is not achievable … then we’ll have to move to another option.”
Early in November, China took steps to open its financial sector to foreign firms, announcing it would relax foreign-ownership restrictions of companies in the Chinese banking and securities sectors up to 51 per cent. That is expected to create opportunities for some Canadian financial institutions to assert more control over new investments.
But so far, Canadian firms have been hesitant to discuss any specific competitive pressures or opportunities that the change might bring. For Canadian lifeinsurance giant Manulife Financial Corp., which entered China before the current investment limit was set and already controls a majority of its business, the impact is expected to be muted.
In mid-November, Manulife launched a wholly owned investment business in Shanghai, and a spokesman said the company is “supportive” of China’s liberalization efforts.
Sun Life Financial Inc. CEO Dean Connor also said he is pleased to see China opening its financial sector to greater participation by foreign firms. “While there are a number of strong local and foreign competitors, the sheer size and growth potential for the market creates opportunity, and we continue to see China as an important part of Sun Life’s strategy in Asia,” he said while on a recent trip to Hong Kong.
Spokespeople for Canada’s two largest banks, Royal Bank of Canada and Toronto-Dominion Bank, declined to comment. But Peter Wong, deputy chairman and chief executive of Hongkong and Shanghai Banking Corp. Ltd., a subsidiary of global banking giant HSBC Holdings PLC, said the relaxed foreign ownership rules “are another step in the opening and reform of China’s economy.”

NAFTA

BLOOMBERG. 11 December 2017. Goldman Warns of U.S. Nafta Exit as Negotiators Seek Small Wins
By Josh Wingrove , Andrew Mayeda , and Eric Martin

• Former Bush adviser says many U.S. proposals ‘non-starters’
• Latest talks arrive with U.S. focused on tax reform, shutdown
• Canada's MacNaughton Remains `Optimistic' on Nafta Deal

Investors remain on alert over the threat of Nafta talks failing even as negotiators meet this week in Washington and seek minor victories on less contentious issues.

The latest meetings to revamp the North American Free Trade Agreement will run through Friday, largely out of the spotlight. Cabinet-level officials won’t attend for the second time since negotiations began in August, and the Trump administration is preoccupied with efforts to push through tax cuts by year-end and avoid a government shutdown.

The distractions in Washington haven’t eased pressure on President Donald Trump to preserve the trade deal, which governs more than $1 trillion in annual commerce. Senators who support Nafta warned the president last week of the economic risks of following through on his threat of withdrawal. Goldman Sachs Group Inc. said it expects Trump will ultimately announce his intention to exit from the accord and that fresh tensions will probably emerge at the next full negotiating round in January.

“While we expect the rising odds of tax reform to put less pressure on the trade agenda, we do not expect passage of tax reform will raise the odds of a successful Nafta renegotiation,” Goldman Sachs said in a note to clients. “And so a withdrawal announcement looks more likely than not, even if tax reform is enacted soon.”

Currency Markets

The move would cause a disruption in currency markets, driving down the peso against the dollar, even if it doesn’t immediately cut back trade, it said. Bouts of weakness in the peso this year have reflected uncertainty over Nafta’s future.

Trump is seeking all the support he can get in the Senate and House to reconcile tax bills and score his first major legislative victory, meaning he’s wooing lawmakers who’ve begun to speak out in favor of keeping Nafta. The last round of Nafta talks ended with U.S. Trade Representative Robert Lighthizer warning that Mexico and Canada need to make concessions, as the only acceptable deal will shift trade flows in the U.S.’s favor.

Many of the U.S. proposals “are so clearly non-starters for our Nafta partners that it doesn’t seem like they’re moving forward that much,” said Douglas Holtz-Eakin, president of the American Action Forum and a former chief economist of the Council of Economic Advisers under George W. Bush. Research published by the forum this month found a Nafta withdrawal would jeopardize 14 million U.S. jobs and cost consumers at least $7 billion.

Divisive Subjects

Observers expect the Washington round to yield progress on issues such as telecommunications, while making no or slower advances on divisive subjects like U.S. proposals on increasing the local content requirements for vehicles, adding a five-year termination clause and dismantling Canada’s protected dairy sector.

The negotiators will spend among the most time discussing rules of origin, which govern content requirements for goods to qualify for duty-free benefits. They’ll also hold sessions on digital trade and state-owned enterprises, among other topics, according to an agenda of the talks. Thorny issues like agriculture and dispute settlement don’t appear on the schedule.

The clock is running down to secure a deal by March, to avoid running into the campaign for Mexico’s presidential election in July and the potential lapse of the U.S. administration’s fast-track negotiating authority. Any nation can announce its intent to withdraw from the accord with six months’ notice, although the U.S. Congress has authority over aspects of tariffs and trade.

‘Toxic Issues’

“We’re going to look at Nafta very seriously,” Trump told reporters on Dec. 5. “Not easy to have an election coming up. We’ll see how that plays.”

Canadian Prime Minister Justin Trudeau struck a mostly upbeat tone last week when asked about the Nafta talks during a trip to China, where Canada failed to reach a deal to launch bilateral negotiations. If Nafta negotiations end without a deal, Canada would be receptive to considering one-on-one talks with the U.S. on trade, said Trudeau.

Also last week, Canada’s chief negotiator Steve Verheul described two tracks, one with progress being made and another where Canada and Mexico are rejecting “extreme” U.S. proposals. “We will not accept U.S. proposals that would fundamentally weaken the benefits of Nafta for Canada and undermine the competitiveness of the North American market,” Verheul said.

The Mexican peso may drop to at least 20 pesos per U.S. dollar if negotiations deteriorate, while the Canadian dollar may slump to C$1.35, Goldman said. “The fact remains that the sides are far apart on issues where we struggle to see an obvious middle ground.”

CETA

The Globe and Mail. BLOOMBERG. 11 Dec 2017. Britain seeks ‘Canada plus plus plus’ EU trade deal, Brexit secretary says
ALEX MORALES

Britain wants a trade deal with the European Union that includes the best parts of the bloc’s agreements with Japan, Canada and South Korea, along with financial services, Brexit Secretary David Davis said, showing optimism a pact can be struck within a year.
The chances of Britain leaving the EU without a deal, defaulting to World Trade Organization rules, have “dropped dramatically,” Mr. Davis said in a BBC TV interview on Sunday. Still, he signalled the painstaking agreement struck on Friday to end the first phase of Brexit negotiations isn’t binding, and that Britain’s exit payment of as much as £39-billion ($67-billion) is contingent on reaching a free-trade agreement. Doing so, he said, “is not that complicated.”
“We start in full alignment: We start in complete convergence with the EU, so we then work it out from there,” Mr. Davis said on the Andrew Marr Show. “What we want is a bespoke outcome: We’ll probably start with the best of Canada, the best of Japan and the best of South Korea and then add to that the bits that are missing, which is services,” he said. “Canada plus plus plus would be one way of putting it.”
The Brexit secretary’s bullishness belies the noise coming from his counterparts in the EU. It’s taken eight months of, at times, bitter haggling to make sufficient progress on what was supposed to be the easiest part of the talks – resolving Britain’s exit payment, its future border with Ireland, and the rights of EU and British citizens living in each other’s territories.
European Council President Donald Tusk spoke on Friday of the challenges ahead: “So much time has been devoted to the easier part of the task and now to negotiate a transition arrangement and the framework for our future relationship we have, de facto, less than a year,” he said in Brussels. “We all know that breaking up is hard, but breaking up and building a new relation is much harder.”
Mr. Davis cited his EU counterpart, Michel Barnier, in describing the next phase as being about “how we manage divergence so it doesn’t undercut the access to the market.” He said Prime Minister Theresa May’s cabinet has discussed a vision for “an overarching free-trade deal, but including services, which Canada doesn’t, with individual, specific arrangements for aviation, for nuclear, for data, a whole series of strands which we’ve worked out, most of them based on where we start now.”
Ms. May’s office has said her cabinet hasn’t discussed the “end state” it wants as an outcome of the Brexit talks, but will do so before year-end.

INTERNATIONAL TRADE

WTO. REUTERS. DECEMBER 11, 2017. WTO losing focus, must rethink development: U.S. trade chief
Luc Cohen

BUENOS AIRES (Reuters) - U.S. President Donald Trump’s trade chief said on Monday that the World Trade Organization is losing its focus on trade negotiations in favor of litigation and needed to rethink how it defines developing economies.

Setting a combative tone at the start of the WTO’s 11th ministerial meeting in Buenos Aires, U.S. Trade Representative Robert Lighthizer complained that too many countries were not following WTO rules and too many wealthier members had been given unfair exemptions as developing countries.

“We need to clarify our understanding of development within the WTO. We cannot sustain a situation in which new rules can only apply to a few and that others will be given a pass in the name of self-proclaimed development status,” Lighthizer told the conference’s opening session.

Lighthizer said it was impossible to negotiate new WTO rules when many of the current ones were not being followed, and added that too many members viewed exemptions from WTO rules as a path to faster growth.

In a thinly veiled swipe at China’s trade practices, Lighthizer said the United States was leading negotiations to “correct the sad performance of many members in notification and transparency.”

He also said Washington wanted the WTO to help make markets operate more efficiently, addressing new challenges such as chronic industrial overcapacity and the influence of state-owned enterprises.

Lighthizer, who has long criticized the WTO’s dispute settlement system, has emerged as the leading voice behind the Trump administration’s “America First” trade agenda. That includes stepped up trade enforcement actions, along with several studies that could lead to broad new tariffs on steel and aluminum, as well as potential retaliation against China’s intellectual property practices. Some of these could run afoul of WTO rules.

Reporting by Luc Cohen and David Lawder; Editing by Susan Thomas

StatCan. 2017-12-11. Canada's external trade classified by broad economic categories, 2016

The broad economic categories (BEC) classification provides data users with a new perspective on Canada's imports and exports. A key feature of the BEC classification is an end-use aggregating structure that is consistent with the three basic classes of goods in the System of National Accounts (SNA), namely capital goods, intermediate goods and consumption goods. This aggregating structure allows the analysis of external trade statistics with other economic data (such as industry statistics) and national economic account aggregates (such as gross domestic product). Imports and exports classified by broad economic categories provide insight into their role as inputs into production, as a source of capital and as a source of goods for final consumption.

Annual data for Canadian international merchandise trade by BEC are now available in CANSIM table 228-0081 for the period from 2000 to 2016.

Intermediate goods represents close to half of imports

Imports of intermediate goods accounted for 47.0% of total imports to Canada in 2016, down from 57.2% in 2000. Meanwhile, the share of imports of consumption goods rose from 15.1% in 2000 to 21.2% in 2016, while the share of imports of capital goods rose from 18.7% in 2000 to 20.3% in 2016. This highlights an important trend in Canadian imports—a move away from the import of intermediate goods towards capital and consumption goods. This could point to a changing role of Canadian business—away from 'assembler' and towards distributor.

Chart 1: Shares of broad economic categories to total Canadian merchandise imports

The reverse is true for exports. In 2016, 58.1% of exports were intermediate goods compared with 56.8% in 2000, while the share of capital goods declined from 14.6% in 2000 to 9.0% in 2016.

Chart 2: Shares of broad economic categories to total Canadian merchandise exports

By BEC category, processed industrial supplies (BEC 22), parts and accessories of transport equipment (BEC 53) were among the top three intermediate exports to and imports from the United States, while primary fuels and lubricants (BEC 31) had the second largest export value to the United States.

In 2016, 71.6% of Canadian intermediate exports were destined for the United States, down from 83.1% in 2000. This compares with 5.3% bound for China, up from 1.4% in 2000, and 5.0% bound for the United Kingdom.

In 2016, 56.5% of Canadian intermediate imports were sourced from the United States. This share decreased by 11.2 percentage points from 2000 to 2016. Imports of intermediate goods from China (8.2% of total intermediate goods) and Mexico (5.2%) accounted for 13.4% of total intermediate good imports in 2016. The share of imports of intermediate goods from China increased from 1.5% in 2000 to 8.2% in 2016, while Mexico's share rose from 2.6% to 5.2%.

Strong growth in consumption goods

Canada consistently imported more consumption goods than it exported and the gap has been widening since 2000. Imports of consumption goods have risen every year since 2000, with the exception of 2010. They reached $113.1 billion in 2016, more than doubling from 2000. Exports of consumption goods have also been growing since 2010, reaching $64.1 billion in 2016.

Chart 3: Imports and exports of consumption goods

In 2016, 41.2% of consumption good imports were sourced from the United States, followed by China (20.4%) and Mexico (4.9%).

In 2016, 73.7% of consumption good exports were bound for the United States, while Japan (3.7%), China (3.5%) and India (1.8%) were other significant markets. China (+17.7%), India (+15.7%) and Italy (+13.9%) had the fastest growth rates from 2000 to 2016.

Canada has a strong demand for capital goods imports

As with consumption goods, Canada is consistently a net importer of capital goods and the gap has widened since the 2009 recession. Imports of capital goods have been trending upwards since 2003 with the exception of 2009 and totalled $108.3 billion in 2016. By comparison, exports of capital goods, at $46.5 billion in 2016, were well below their 2000 level. As a consequence, the growth rate of imports (+3.1%) outpaced that of exports in capital goods (-1.6%) by a wide margin from 2000 to 2016.

Chart 4: Imports and exports of capital goods

In 2016, 48.2% of imports in capital goods mostly originated from the United States, followed by China (19.0%) and Mexico (8.8%). China's share of imports has increased more than 10 fold in 16 years.

In 2016, 72.5% of capital goods exports were destined for the United States, followed by China (2.9%) and the United Kingdom (2.5%). Malta was the fourth-largest destination of capital goods exports, mainly aircrafts. While the United States was the largest destination, exports nonetheless declined by an average of 2.8% from 2000 to 2016.

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171211/dq171211a-eng.pdf

StatCan. 2017-12-11. Export diversification

With over $500 billion worth of merchandise sold to international markets annually, goods exports contribute considerably to Canadian economic activity. This reliance on foreign markets comes with risks arising out of volatile commodity prices, exchange rate fluctuations, changes in demand for commodities, as well as economic and political uncertainty.

Export diversification can be thought of as a way to reduce risk by spreading it among various products and markets. Two types of diversification, namely product and geographic diversification, apply to international trade exports.

Types of export diversification

Product diversification means spreading exports across a wide range of products as a way of hedging the risk associated with commodity price volatility, as well as downturns in the global demand for specific commodities.

Geographic diversification can be applied to markets of destination and provinces of production. Diversification of destination markets means spreading exports across a number of partner countries as a way of hedging against exchange rate volatility and political or economic risk specific to a particular export market.

Diversification by provinces of production involves the participation of a number of provinces and territories in the export of goods, with the safeguard of spreading among provinces the various risks associated with reliance upon foreign markets.

Measuring diversification

As an inverse measure of Canadian export diversification, a concentration ratio, based on the Herfindahl-Hirschman index (HHI), is now available. Values of this ratio range between 0 and 1, with values close to 0 representing greater diversification of exports and a value of 1 representing perfect concentration of exports. Exports can be considered diversified when HHI levels are below 0.15. Concentrated exports can be further separated into sub-categories for moderate concentration (0.15 <= HHI < 0.25), and high concentration (HHI >= 0.25). An index of the concentration ratio is also available, facilitating the analysis of Canadian export concentration levels over time. Furthermore, product diversification can also be analyzed at the provincial and territorial levels.

Chart 1: Canadian export concentration

In terms of product diversification, Canadian exports were consistently diversified throughout the period of study. The degree of product diversification has increased in recent years with the decrease in crude oil exports. In 2016, Canada's HHI for product diversification was 0.08.

Export diversification by market of destination is characterized by a high level of concentration throughout the period of study, with the United States being the dominant market for Canadian exports. The HHI for Canadian diversification by market of destination was 0.57 in 2016. Among non-US countries, Canadian exports are diversified by market of destination.

Diversification by province of production has moved between moderate and high concentration throughout the period of study. In 2016, the level of the HHI was 0.26, with exports concentrated in Ontario.

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171211/dq171211b-eng.pdf

Canadian International Trade Tribunal. December 8, 2017. Tribunal Initiates Expiry Review—Carbon Steel Welded Pipe from Chinese Taipei, India, Oman, Korea, Thailand and the United Arab Emirates

Ottawa, Ontario — The Canadian International Trade Tribunal today decided to initiate a review of its finding made on December 11, 2012, concerning carbon steel welded pipe, originating in or exported from Chinese Taipei, the Republic of India, the Sultanate of Oman, the Republic of Korea, Thailand and the United Arab Emirates, excluding the goods exported from the United Arab Emirates by Conares Metal Supply Ltd.

The Tribunal is an independent quasi-judicial body that reports to Parliament through the Minister of Finance. It hears cases on dumped and subsidized imports, safeguard complaints, complaints about federal government procurement and appeals of customs and excise tax rulings. When requested by the federal government, the Tribunal also provides advice on other economic, trade and tariff matters.

Canadian International Trade Tribunal—Newly Published Documents: http://www.citt-tcce.gc.ca/en/whats-new

Canadian International Trade Tribunal. December 8, 2017. Tribunal Finds Threat of Injury—Carbon Steel Welded Pipe from Chinese Taipei

Ottawa, Ontario — The Canadian International Trade Tribunal (the Tribunal) today confirmed that the dumping of carbon steel welded pipe, originating in or exported from Chinese Taipei and excluding the goods exported by Chung Hung Steel Corporation and Shin Yang Steel Co. Ltd., has threatened to cause injury to the domestic industry.

The Tribunal’s finding stems from a request for review by the Minister of Finance under section 76.1 of the Special Import Measures Act.

The Tribunal is an independent quasi-judicial body that reports to Parliament through the Minister of Finance. It hears cases on dumped and subsidized imports, safeguard complaints, complaints about federal government procurement and appeals of customs and excise tax rulings. When requested by the federal government, the Tribunal also provides advice on other economic, trade and tariff matters.

Canadian International Trade Tribunal—Newly Published Documents: http://www.citt-tcce.gc.ca/en/whats-new

Canadian Intellectual Property Office. 2017/12/08-09. Launch of public consultations on amendments to the Industrial Design Regulations.

Gatineau – The Government of Canada is conducting public consultations on proposed amendments to the Industrial Design Regulations (the Regulations) through the Canada Gazette, Part I. The period for public comment is 30 days, between December 9, 2017 and January 8, 2018.

The primary objective of changing the Regulations is to allow Canada to accede to the Hague Agreement Concerning the International Registration of Industrial Designs (the Hague Agreement), which would provide Canadians with access to an international registration system that allows the intellectual property (IP) of industrial designs to be protected in multiple jurisdictions through a single streamlined process. A second objective is to modernize Canada’s industrial design regime by updating, clarifying, codifying and improving aspects of the regulatory framework. Together, these measures will better serve clients, lower costs and improve the ease of doing business.

The proposed regulatory amendments are aligned with the Government’s plan to develop a new IP strategy to help ensure that Canada’s IP regime is modern, robust and supports Canadian innovation in the 21st century. In addition to amending the industrial design framework to join the Hague Agreement, the Canadian Intellectual Property Office (CIPO) is working to amend the trademarks and patent frameworks so that Canada can join four other widely adopted international IP treaties administered by the World Intellectual Property Organization: the Madrid Protocol, the Singapore Treaty and the Nice Agreement for trademarks, and the Patent Law Treaty.

The draft Regulations have been developed in close collaboration with stakeholders, including initial consultations on the drafting instructions in 2016 and consultations on an earlier draft of the Regulations in 2017.

We encourage Canadians to share comments and views which will be considered prior to finalizing the Regulations for publication in Canada Gazette, Part II.

Quotes

“A strong intellectual property system is key to encouraging innovation, attracting investment, and helping businesses succeed in the global marketplace. We encourage Canadians to provide their comments on the proposed regulatory amendments to the Industrial Design Regulations.”

– Johanne Bélisle, CIPO’s Commissioner of Patents, Registrar of Trademarks and Chief Executive Officer

Quick Facts

• The Hague Agreement is administered by the World Intellectual Property Organization, the United Nations agency which is the global forum for IP services, policy, information and co-operation.
• Joining the Hague Agreement will enable Canadians to use a system which allows applicants from member countries to register up to 100 industrial designs in multiple jurisdictions through one application, in one language, with fees paid in one currency (Swiss francs) in a single transaction.
• Canada’s membership in the Hague Agreement will also provide foreign businesses in member countries reciprocal advantages in applying for industrial design protection in Canada.
• There are currently 66 countries or regional associations that are part of the Hague Agreement, including most of Canada’s major trading partners such as the European Union, the United States, Japan and South Korea.

FULL DOCUMENT: https://www.canada.ca/en/intellectual-property-office/news/2017/12/launch_of_publicconsultationsonamendmentstotheindustrialdesignre.html

Backgrounder

The Government of Canada is moving to modernize Canada’s intellectual property (IP) regime and join five international IP treaties: the Hague Agreement Concerning the International Registration of Industrial Designs (the Hague Agreement); the Patent Law Treaty; and for trademarks, the Madrid Protocol, the Singapore Treaty and the Nice Agreement.

Changes to the Industrial Design Act required for accession to the Hague Agreement received Royal Assent on December 16, 2014. The proposed changes to the Industrial Design Regulations (the Regulations) would complete the next step towards accession and further modernize Canada’s domestic industrial design framework.

The proposed Regulations are published in Canada Gazette, Part I, for a 30-day period for public comment between December 9, 2017 and January 8, 2018. We encourage Canadians to share comments and views; your feedback will be considered prior to finalizing the regulations for publication in Canada Gazette, Part II.

Benefits of acceding to the Hague Agreement

Currently, Canadian businesses seeking to register their industrial designs in other jurisdictions must meet the particular administrative requirements for each foreign IP office by filing separate applications, paying separate fees in the appropriate currency and managing their applications and/or registrations in each individual jurisdiction.

Acceding to the Hague Agreement can simplify this process for Canadians by providing them with access to an international registration system—the Hague System—that allows industrial designs to be protected in multiple countries or regions through a single, streamlined process. Key benefits of this process include the following:

• The application can be in one language (English, French or Spanish);
• You may file directly with the World Intellectual Property Office (WIPO) through the E-filing interface, or on paper;
• The application can contain up to 100 designs if they belong to the same class of the International Classification;  
• Fees may be paid in one transaction, in one currency (CHF); and,
• Management of an international registration is simplified—for example, a change in name or address of the holder, or a change in ownership, can be recorded in one step.

Most of Canada’s major trading partners, such as the European Union, the United States, Japan and South Korea are part of the Hague Agreement.

Canada’s membership in the Hague Agreement would also provide foreign businesses in member countries reciprocal advantages in applying for industrial design registration in Canada.

Modernizing the industrial design framework

In addition to the measures required to accede to the Hague Agreement, the proposed Regulations contain provisions that would update, clarify and codify aspects of Canada’s industrial design framework. For example, provisions are being introduced that would expand CIPO’s ability to interact with clients electronically and reduce red tape for businesses.

The following is an overview of some key regulatory changes being proposed. A more detailed description of the amendments is provided in the Regulatory Impact Analysis Statement (RIAS): http://www.gazette.gc.ca/rp-pr/p1/2017/2017-12-09/html/index-eng.html.

Overview of key proposed regulatory amendments — Industrial Design Regulations

Communications

The proposed amendments would facilitate and enhance our electronic commerce capabilities by allowing CIPO to communicate with clients via a web interface and by accepting additional electronic file formats. In addition, the requirement that correspondence be restricted to one application or registered design would be removed.

Representation before CIPO

A representative for service would no longer be required and there would be no requirement that an appointed agent have a Canadian address.

Register

The proposed amendments would define what information is contained in the Register of Industrial Designs.

Applications

Application requirements would be updated to align with international standards, e.g. the current requirement for applicants to complete a prescribed form would be removed and a description of the design would no longer be mandatory.

One design per application

This section would extend the ability to file divisional applications to content that is disclosed in the original application. While CIPO currently allows divisional applications in practice, the proposed amendments would clarify and codify processes.

Filing date

Requirements for a filing date would be simplified: an applicant would only need to provide an indication that the registration of a design is requested, a name, a means of contact and a representation of the design.

Examination

This section would stipulate that if CIPO decides the design is not registrable, CIPO must first send a report to the applicant outlining its concerns and objections. Applicants would have three months to reply to this report and be able to request one six-month extension.

Amendments

The proposed regulatory amendments would introduce limits to what an applicant can amend. For example, an amendment that changes the identity of the applicant would not be acceptable and neither would an amendment that changes the design to one that is substantially different from the original.

Priority

The proposed amendments would provide more detail on priority request procedures, e.g. they introduce a consequence for applicants requesting priority if they do not comply with a request from CIPO to provide a copy of their priority documentation.

Among other changes, this section also includes a new provision allowing CIPO to access a digital database in order to obtain a copy of priority documentation.

Applications and documents made available to public

Any national application that is pending would be published after 30 months from its filing date or priority date, unless it has been withdrawn. Applications received under the Hague System would be published by WIPO according to established timelines.

Maintenance of exclusive right

The proposed amendments contain provisions for maintaining a registration. While the process for paying fees remains largely the same as current practice, instead of being renewed for five years, a renewed registration will cover a period that begins five years after the date of registration of the design and ends on the later of the end of 10 years after the date of registration and the end of 15 years after the filing date of the application.

Fees

While the proposed amendments would not change the current fees charged by CIPO, this section clarifies that CIPO would, upon request, refund payments made in excess of the amount required. Applicants would have three years from the date of overpayment to request a refund.

Implementation of the Hague Agreement

Examples of amendments required for the Hague System to come into effect in Canada include provisions:

• To permit designs published on the International Register, and a copy of the International Register, to serve as evidence in court. As it stands, only designs registered in the Canadian Register of Industrial Designs can do so; and
• To ensure that applicants using the Hague System can secure a filing date even though they have not filed directly with CIPO.

ENERGY

StatCan. 2017-12-11. Crude oil and natural gas: Supply and disposition, September 2017

• Production of crude oil and equivalent products: 20.0 million cubic metres, September 2017, 3.8% increase (12-month change)
• Exports of crude oil and equivalent products: 15.6  million cubic metres, September 2017, 5.3% increase (12-month change)
• Source(s): CANSIM table 126-0003: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=1260003&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=

Canada produced 20.0 million cubic metres (125.6 million barrels) of crude oil and equivalent products in September.

Crude oil production

Production of crude oil and equivalent products in September was up 3.8% from the same month a year earlier.

Chart 1: Production of crude oil and equivalent products

The increase was largely attributable to an 11.8% rise in non-upgraded production of crude bitumen, which was offset by declines in synthetic crude (-5.3%) and in light and medium crude (-3.3%) oil. Over the same period, heavy crude oil production rose 1.2% to 2.0 million cubic metres.

The increase in non-upgraded crude bitumen in September was driven by higher in-situ production (up 11.1% to 7.7 million cubic metres), while mined production decreased 2.9% to 5.8 million cubic metres. Crude bitumen sent for further processing declined 4.4% to 5.5 million cubic metres.

Production of conventional and non-conventional crude oil

In September, crude oil production (excluding equivalent products) totalled 18.4 million cubic metres. Non-conventional crude oil production, which consists of non-upgraded crude bitumen and synthetic crude oil, increased 4.7% from the same month a year earlier to 12.8 million cubic metres.

Meanwhile, conventional production of light, medium and heavy crude oils decreased 1.7% to 5.5 million cubic metres.

Chart 2: Production of conventional and non-conventional crude oil 

Provincial production

Alberta produced 16.3 million cubic metres of crude oil and equivalent products in September, up 5.9% from September 2016, and accounted for 81.7% of total Canadian production. Saskatchewan (12.0%) and Newfoundland and Labrador (3.8%) were also key contributors.

Chart 3: Provincial production of crude oil and equivalent products

Refinery use of crude oil

Input of crude oil to Canadian refineries totalled 8.4 million cubic metres in September, up 15.0% from the same month a year earlier. Conventional crude oil accounted for 63.1% of the total, while non-conventional represented the remaining 36.9%. Light and medium crude oil (4.3 million cubic metres) and synthetic crude oil (2.5 million cubic metres) were the main types of crude oil used by Canadian refineries.

Exports and imports

Exports of crude oil and equivalent products were up 5.3% from September 2016 to 15.6 million cubic metres in September. The vast majority of exports (92.6%) were transported via pipelines to the United States, while exports by other means (including rail, truck, and marine) to the United States accounted for the remaining 7.4%. There were no exports to foreign countries other than the United States.

Imports to Canadian refineries, which tend to be more volatile, were up 33.1% to 3.0 million cubic metres from September 2016.

Chart 4: Exports and imports of crude oil and equivalent products

Closing inventories

Closing inventories of crude oil and equivalent products were down 2.3% from the same month a year earlier to 17.8 million cubic metres in September. The total was comprised of refineries (up 2.7% to 3.7 million cubic metres), transporters (down 1.1% to 11.6 million cubic metres) and fields and plants (down 13.6% to 2.5 million cubic metres).

Quarterly changes in crude oil

For the quarter ending September 30, 2017, crude oil and equivalents production rose 7.0% from the third quarter of 2016 to 62.2 million cubic metres. This represented the highest quarterly production on record, surpassing the previous high of 61.2 million cubic metres in the fourth quarter of 2016. The increase was largely attributable to high levels of non-upgraded production of crude bitumen.

Over the same period, exports rose 8.1% to 47.7 million cubic metres.

Natural gas production

Marketable natural gas production in Canada totalled 13.4 billion cubic metres in September, up 3.6% from the same month a year earlier. Alberta (73.4%) and British Columbia (24.2%) continued to account for most of Canadian production.

Additional information on natural gas is available in "Natural gas transmission, storage and distribution," published in The Daily on November 23, 2017.

Quarterly changes in natural gas

Marketable production of natural gas rose by 1.7% from the third quarter of 2016 to 40.7 billion cubic metres in the third quarter.

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171211/dq171211c-eng.pdf

FINANCE

Department of Finance Canada. December 10, 2017. Finance Ministers Meet to Build on Progress for the Middle Class

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

Federal, provincial and territorial Finance Ministers will meet today and tomorrow in Ottawa to build on their productive partnership, discuss issues that are top of mind for Canadians, and make further progress on important joint priorities.

Finance Ministers will gather during this semi-annual meeting to work collaboratively on priorities including:

• Improving the available information on corporate ownership in Canada, to ensure appropriate authorities know who owns which companies, and thereby have better tools to combat money laundering, tax evasion and other criminal activities.
• A coordinated approach to the taxation of cannabis to help keep it out of the hands of youth, and profits out of the hands of criminals.
• The review of the Canada Pension Plan (CPP), to ensure it continues to respond to the needs of retirees, workers and employees. This is done every 3 years.
• A discussion on the Government of Canada's commitment to gender budgeting.
• In advance of the meeting, federal Finance Minister Bill Morneau confirmed that the Government of Canada will be providing a record $75.5 billion to provinces and territories in 2018-2019 in transfer funding.

Quote

"I look forward to meeting with my provincial and territorial counterparts and moving the yardstick on issues that matter to Canadians. From working together to legalize and strictly regulate cannabis, to recognizing the need to reduce blind spots in combatting international tax evasion and avoidance, to ensuring a stronger CPP and equal opportunities for women and men, the Finance Ministers' table is one that gets results. I look forward to productive and collaborative discussions with my colleagues over the coming days."

- Bill Morneau, Minister of Finance

Quick Facts

• Canada's Finance Ministers typically meet twice a year to discuss shared priorities.
• The Finance Ministers Meeting will include a presentation by Bank of Canada Governor Stephen S. Poloz on the global economy and Canadian monetary policy.
• The Government of Canada provides significant financial support to provincial and territorial governments on an ongoing basis to assist them in the provision of programs and services.
• Among the transfer programs to provinces and territories, the four main ones are: the Canada Health Transfer (CHT), the Canada Social Transfer (CST), Equalization and Territorial Formula Financing (TFF):

1. The CHT and CST are federal transfers which support specific policy areas such as health care, post-secondary education, social assistance and social services, early childhood development and child care.
2. The Equalization and TFF programs provide unconditional transfers to the provinces and territories.
3. Equalization enables less prosperous provincial governments to provide their residents with public services that are reasonably comparable to those in other provinces, at reasonably comparable levels of taxation.
4. TFF provides territorial governments with funding to support public services, in recognition of the higher cost of providing programs and services in the north.

FULL DOCUMENT: http://www.fin.gc.ca/n17/17-121-eng.asp

The Globe and Mail. 11 Dec 2017. Morneau’s top outside advisers are warning that tax changes, worker retraining are essential to keep Canada’s economy competitive. Economy: Council’s latest recommendations focus on boosting business investment, upgrading Canadians’ skills 
BILL CURRY
SEAN SILCOFF

The council has focused on finding ways to grow economic output per capita at a 1.8-per-cent annual pace. While that is close to average levels over the past 50 years, it’s also well above the forecast pace of 0.8 per cent in years ahead that would leave Canada lagging other advanced economies.

OTTAWA - Canada is ill-prepared for the effects of widespread technological disruption reshaping the global economy, Finance Minister Bill Morneau’s expert panel of economic advisers are warning in a set of reports scheduled for release this week.
To prevent the country’s economic growth from falling behind that of other nations, the group is recommending a modernization of Canada’s tax and regulatory systems to make them more innovation-friendly.
In addition, it is calling for a $15-billion spending surge to retrain workers so their skills are up to speed in a rapidly shifting labour market.
The recommendations are contained in advance drafts of the latest reports from the 14-member group, formally known as the Advisory Council on Economic Growth, obtained by The Globe and Mail.
“The latest wave of recommendations is geared towards preparing our economy … to capture the opportunities and handle the disruption coming over the next decade,” said council chair Dominic Barton, global managing director of consultancy McKinsey & Co. Mr. Barton was one of several council members who spoke with The Globe about their third set of recommendations to government since the council’s formation in March, 2016.
“The world is going through a period of unprecedented change, which offers many opportunities but also brings significant volatility,” the council writes in one of the documents, received by Mr. Morneau earlier this month. “Canada must be prepared to navigate this change and volatility. It can no longer rely on the old formula for economic growth, which emphasized investments in machinery and equipment, and population growth.” The new reports come as Mr. Morneau crafts his third budget, for release in early 2018. They likely provide a sense of policy themes under consideration given the government’s close co-operation with the council and quick action on several of its past calls. Proposals that have been adopted include the launch of an infrastructure bank, the creation of a federal entity to promote foreign investment into Canada, and changes to boost immigration levels and hasten the process for high-skilled foreigners to move here. A spokesperson for Mr. Morneau said the minister has had good discussions with the council and will carefully review its suggestions as he prepares the budget.
The council has focused on finding ways to grow economic output per capita at a 1.8-per-cent annual pace. While that is close to average levels over the past 50 years, it’s also well above the forecast pace of 0.8 per cent in years ahead that would leave Canada lagging other advanced economies. Achieving the higher rate would boost median household income in 2030 by $15,000 above forecasts.
Its latest recommendations focus on boosting business investment – an area where Canada has chronically lagged global peers – and upgrading the skills of Canadians. To achieve the first goal, the council is calling for the creation of an expert panel to suggest “targeted” changes to tax law, including corporate and personal tax rates. “We want to ensure that we have a tax system that really encourages and supports innovation and encourages investment in both the hardware and the software that companies need,” said council member Elyse Allan, chief executive of General Electric Co.’s Canadian unit.
Mr. Morneau has faced criticism this fall from business groups over proposed small-business tax changes set to take effect Jan. 1, and the government’s appetite for undertaking further tax changes is unclear. Council member Christopher Ragan, a McGill University economics professor, said the group didn’t discuss political challenges the Liberals may face in following its advice. “We don’t care about the politics,” he said. “Is this minister going to take it on? We’ll have to wait and see. … I think he would because it’s a good thing to do.”
The council also calls for a panel to find ways to identify regulatory barriers to growth, suggesting Canada establish a more “agile regulatory system” than now exists. “We need to regulate differently than we have in the past,” the group writes. The council notes that it takes applicants three times longer to obtain permits for construction in Canada than in the United States, and that Canada trails other countries in experimenting with new regulations for rapidly evolving sectors such as financial services.
The new reports focus on preparing Canadians for an economy rapidly shifting away from the production and sale of physical goods to the commercialization of digital services and intellectual property. That is being accompanied by changes in how work is done, and by whom – or by what. According to a recent McKinsey study, 45 per cent of activities performed by humans could be automated using existing technology. “Already, robots can build your car, take your lunch order, review your legal case history, sell you insurance or examine your X-rays,” reads one council report. The council says at least 10 per cent of the Canadian work force – about two million people – face job losses by 2030 and will struggle to find new jobs “unless they acquire new formal qualifications.”
The council acknowledges that federal and provincial governments are aware of the challenges and do fund training programs. Ottawa promised significant changes in the previous budget to existing agreements to transfer job-training funds to provinces and territories plus an additional $2.7-billion in related spending over six years. Federal Employment Minister Patty Hajdu said in an interview that negotiations to revise the transfers are going well and results could be announced in early 2018. The government previously responded to an earlier growth-council recommendation by setting up a new organization to study and report on Canada’s skills needs.
But council member Ilse Treurnicht, former CEO of Toronto’s MaRS Discovery District said, “much more needs to be done given the wave that’s headed our way. It will take an all-hands effort.” She added that other countries are experimenting with retraining efforts, but “it is still early in the process.”
The growth council calls for a “jolt to the system” with the creation of a “third pillar” alongside the education system and regimes for funding retirement and unemployment insurance. “The focus has to be about providing skills upgrading capabilities and opportunities for people who are in the labor market,” said council member Michael Sabia, CEO of the Caisse de dépôt et placement du Québec.
At the heart would be a new $15-billion-per-year fund for training employed adults that would be jointly funded by government, industry and individuals. Mr. Sabia said it was “premature” to say how costs would be split. The council also calls for the government’s employment centres to be transformed to provide not only help for the unemployed but also career and training guidance for working adults and employers. “What we’re really saying is … the country has to get on with the discussion that’s required about how are we are going to deal with this issue,” he said.

The Globe and Mail. 11 Dec 2017. ARTICLE. Time to let the world know Canada is a financial giant
JENNIFER REYNOLDS, President and CEO of Toronto Financial Services Alliance

Arecent report commissioned by the Toronto Financial Services Alliance revealed that Canada’s financial sector continues to be a driver of jobs and a growing contributor to Canada’s GDP. The Conference Board of Canada shows that, while many other top global financial centres have seen their employment numbers shrink over the past decade, Canada’s have risen by 10.5 per cent, now employing more than 800,000 people. In terms of GDP, the sector’s growth has been more robust – rising by 28 per cent over the same period, nearly double the average for the Canadian economy. Not only has the sector’s growth affected its proportion of Canada’s GDP, its share of outward foreign direct investment is now 48 per cent, doubling to $505-billion since 2006.
Even better news for Canadians is that the strength of our financial sector has also fostered growth in the broader economy. While the prominence of Canada’s financial sector continues to grow, it is noteworthy that it is also very often underestimated on the international stage. The fact that Toronto is the second-largest financial centre in North America and the 7th most significant globally generally comes as a surprise to people outside of Canada.
Canada is fortunate that its financial institutions weathered the financial crisis in much better condition than global peers. This stability allowed banks to continue to extend credit and support business growth across the economy. Simultaneously, financial institutions were able to boost their international footprint, with 18 per cent of revenues for Canada’s financial institutions now coming from outside Canada. Canada’s pension plans have also contributed to this growth with foreign investments representing 32 per cent of pension portfolios in 2016, up from 19 per cent in 2000.
The strength of the sector has become a key competitive advantage for Canada and, even more so, for Toronto. Financial services represent 8.5 per cent of metro Toronto employment, up 25 per cent since 2006, and 14 per cent of the city’s GDP. Toronto’s strong pool of talent in financial services, almost 400,000 directly and indirectly employed professionals, coupled with the region’s significant pool of technology talent, has also fostered growth in the city’s fintech ecosystem. This valuable pool of talent is also increasingly bringing foreign financial institutions to Toronto.
The Conference Board also highlighted the impact the sector has had on the growth and prosperity of Canada’s small and medium-sized enterprises (SMEs). SMEs comprise 99.7 per cent of all businesses in Canada and are in many respects the backbone of the Canadian economy. Much of Canada’s reputation as a global leader in innovation is attributed to the opportunity that SMEs have to prosper. What is frequently lost in the narrative is the key role financial institutions play in the successful exploitation of the opportunities that Canadian SMEs represent.
The financial sector extended $243-billion in credit to SMEs last year, up 25 per cent since 2011, primarily in the form of loans for working capital and capital investments. SMEs also raised $21-billion in capital on the TSX venture exchange in 2016 providing larger equity investments for companies later in their development. Insurance, payments processing, risk management and trade services and expertise are also critical financial services that support SMEs. Without these services, a modern, dynamic and resilient economy is impossible.
All of these elements have increased the prominence of Canada’s financial sector and Toronto’s ranking as a leading global financial centre. The question is why is this strength not better appreciated internationally? In the context of this recent score card for the financial sector, combined with the open and stable social and political environment in Canada, there is a unique window to attract capital, business and talent to the sector, and especially to Toronto.
As innovation continues to change the competitive landscape in the industry, capitalizing on bringing new talent and investment to Canada can only increase the industry’s ability to maintain competitiveness and continue to foster growth, and strengthen this sector’s important role in the economy. While it may challenge our Canadian tradition of modesty, now is the time to seize this opportunity to promote the international prominence of the Toronto financial centre and put to rest any misconceptions about Canada’s role in the global financial landscape.

The Globe and Mail. 11 Dec 2017. ARTICLE. BoC needs to rethink its inflation strategy
JEAN-PAUL LAM, Associate professor in the department of economics, University of Waterloo

With the economy currently operating close to full capacity and unemployment being low, conventional wisdom suggests that prices should start increasing, especially as firms start facing shortages of labour and have to pay higher wages to attract workers. The fact that inflation remains low despite these conditions is a puzzle and this suggests that there are other factors at play.

Inflation in Canada, and in many countries, continues to undershoot its target despite strong economic growth and low unemployment. The persistently low inflation – especially this year – has stumped many central bank leaders, including Janet Yellen at the U.S. Federal Reserve.
The Bank of Canada, on the other hand, does not seem to believe that low inflation is a mystery. The Bank’s position is that inflation has been held down by temporary factors, including persistent excess capacity in the economy, and is just slow to come back.
Temporary factors and persistent slack in the economy may well be exerting downward pressure on inflation – even if it has been below 2 per cent since 2013. However, with energy prices back up, electricity rebates in Ontario being a one-time affair and measures of inflation (such as CPI-trim that excludes extreme price movements) remaining persistently below the 2-per-cent mark, temporary factors look less and less likely. With the economy currently operating close to full capacity and unemployment being low, conventional wisdom suggests that prices should start increasing, especially as firms start facing shortages of labour and have to pay higher wages to attract workers. The fact that inflation remains low despite these conditions is a puzzle and this suggests that there are other factors at play.
In its latest Monetary Policy report, the Bank indicated that factors such as globalization and digitization are not important drivers of low prices in Canada. As Governor Stephen Poloz has acknowledged, it is challenging to statistically quantify the effects of globalization on prices and wages, as these changes occur slowly and are fairly complex.
There are reasons, nevertheless, to believe that globalization is holding down the pricing power of firms and the bargaining power of workers even as the economy expands. Other structural factors, such as declining productivity growth and demographic and technological changes, are also contributing to lower prices and wages to varying degrees. These factors are likely to persist, and as long as wage growth is subdued, inflation will remain low.
Global competition has also contributed to low inflation in another way. As the share of imports has increased over time, total inflation in Canada has tracked more closely with tradable-goods inflation (the price of goods that are traded internationally). A decomposition of the CPI into tradable and non-tradable inflation reveals that while the latter has remained close to 2 per cent since 2012, tradable-goods inflation, on the other hand, has remained well below 1.5 per cent during that period. Tradedgoods inflation has also been falling in numerous other countries, suggesting that globalization may be pulling down inflation everywhere.
The surprisingly low inflation makes it even more important to understand the dynamics of inflation, in particular the relationship between realized inflation, the unemployment gap (the difference between the actual unemployment and its equilibrium rate), and past and future expectations of inflation as embodied in the modern Phillips curve, which remains the primary framework for understanding and forecasting inflation at central banks. As the Bank gained credibility with the 2-per-cent inflation target in the 1990s, the weight on inflation expectations rose while the importance of the unemployment gap as a determinant of actual inflation fell.
While the latter remains true, there is evidence that inflation has become less forward-looking recently. Persistent low inflation may have caused inflation expectations to become less anchored around the 2-per-cent mark, explaining why inflation has become more backward-looking over time.
Indeed, the Business Outlook Survey published by the Bank shows that more and more firms are expecting inflation to remain in the 1-per-cent to 2-per-cent range in the foreseeable future. This does not necessarily mean the Bank has lost credibility, but it may imply a shift in inflation expectations and this is something that the BoC needs to pay close attention to. These apparent changes in the Phillips curve will make it more difficult for the Bank of Canada to understand the nature of inflation dynamics and make its work more difficult.
Inflation targeting is not an exact science by any means, and our understanding of the factors driving inflation is imperfect. The fact that the Bank did not raise rates in October and December after raising them twice earlier in the year despite a continued fall in economic slack and temporary factors waning suggests it may be grasping with the issue of low inflation after all.
Low inflation is a mystery in Canada and it may explain why the BoC has given no clear indication on the future path of interest rates. If the Bank truly believes that we are close to capacity and that temporary factors are holding down inflation – given that changes in interest rates take time to affect the economy – it should immediately resume increasing interest rates and avoid being behind the curve.
On the other hand, if structural factors are weighing on inflation in Canada, rates may have to stay low for a longer period of time. Doing so, however, leaves the Bank with very little room to fight a recession and also amplifies the downside risks coming from the household sector and housing market.

THE BLOBE AND MAIL. DECEMBER 8, 2017. OPINION. Waiting for Stephen Poloz: A challenging 2018 lies ahead
STEVE AMBLER AND JEREMY KRONICK, CONTRIBUTED TO THE GLOBE AND MAIL

Steve Ambler is the David Dodge Scholar in monetary policy at the C.D. Howe Institute, and professor of economics at the school of management, University of Quebec at Montreal. Jeremy Kronick is senior policy analyst at the C.D. Howe Institute.

As was widely expected, the Bank of Canada announced on Wednesday that it was not changing its target overnight rate. Despite the announcement reinforcing expectations, the emphasis on caution was enough to knock more than a half a cent off the value of the Canadian dollar before the end of Wednesday morning. With uncertainty on the horizon for 2018, the year promises to be a challenging one for our central bankers – one that will require market guidance.

The overall tone was balanced and the announcement emphasized caution. The global economy is in good shape with U.S. growth in the third quarter stronger than expected. Risks, however, remain in the form of geopolitics and trade. It also simultaneously warned that "higher rates will likely be required over time" while indicating that "Governing Council will continue to be cautious, guided by incoming data, in assessing the economy's sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation."

However, there were two interesting omissions as we look out into 2018, which are themselves quite predictable but whose effects are harder to ascertain. The first is an impending series of interest-rate hikes by the U.S. Federal Reserve, and the second is the regulatory changes that will impact Canadian housing markets as the calendar turns over.

According to a Reuters poll, the Fed is almost certain to hike rates later this month, and a majority of the economists polled expect three more rate hikes in 2018. Hikes by the Fed will lead to further depreciation of the Canadian dollar unless they are matched by increases in the Bank of Canada's overnight rate. This will help to boost exports and overall demand while putting upward pressure on inflation.

On the domestic front, OSFI's B-20 guidelines for the underwriting of residential mortgages are due to take effect on Jan. 1. They will certainly have the effect of cooling housing demand and reducing prices while putting a brake on additional household indebtedness.

While the qualitative effects of these changes are clear, the quantitative effects are largely uncertain – and may actually pull inflation and economic activity in opposite directions. Fed rate hikes may put upward pressure on inflation, while the new mortgage rules will slow housing demand and, therefore, prices. Additionally, if the bank judges that an increase in the overnight rate is warranted as a result of upward pressures in inflation from Fed rate hikes, this might exacerbate Canada's housing indebtedness situation despite the new OSFI guidelines.

What is certain is that the Bank of Canada has spent considerable time and effort simulating the effects of different scenarios as well as the effects of its own possible reactions to these changes.

It will have surely estimated the relative impact of U.S. interest-rate hikes on demand and inflation, and how much of an interest-rate differential it is ready to tolerate before deciding to dampen these effects with hikes of its own.

Similarly, it will have simulated alternative scenarios of the impact of OSFI's regulatory changes on households' borrowing and spending decisions. A stronger predicted impact of the regulatory changes will take pressure off the bank to hike rates in response to financial stability concerns.

By communicating its thinking on these complicated issues to the public, the bank could enhance the predictability of the future path of the overnight rate. In turn, this could only enhance the effectiveness of its monetary policy, which depends on the ability of changes in its policy rate to affect demand and prices. The current value of the overnight rate only has a strong effect on short-term interest rates. It is medium-term financial conditions that affect household and firm decisions to spend, and these are largely dependent on the path of the overnight rate.

There is now a considerable divergence of opinion among forecasters concerning that path. The major banks are forecasting an overnight rate at the end of 2018 of between 150 basis points (CIBC, Scotiabank and TD) and 200 basis points (National Bank). To us, this wide divergence in views means that the bank could be doing a better job of conditioning expectations.

With 2018 likely to bring considerable uncertainty, opening up to the public may bring a little new year's cheer.

HOUSING

The Globe and Mail. 11 Dec 2017. Housing indicators show signs of rebound. But concerns abound that Canadians are carrying dangerous levels of debt
MICHAEL BABAD, ANALYSIS

Vancouver inflated housing market is rebounding from a tax-induced slump, a trend economists say may soon affect Toronto as well.

Some of the madness in Canada’s housing markets may have abated, but observers fear sanity may be short-lived and that many families are now in a precarious position as interest rates rise.
Indeed, Vancouver’s inflated market is rebounding from its tax-induced slump and economists believe Toronto could follow the same path.
We’ll hear a lot more about it this week when the Canadian Real Estate Association (CREA) releases its look at how sales and prices fared in November and Statistics Canada reports on the debt burden among households, already among the most troubling levels in the world and expected to rise higher still.
“Ten years of macroprudential policies have helped to mitigate household borrowing-behaviour threats to the financial system, but risks still remain,” Citigroup economist Dana Peterson said of the various measures taken in Canada, from taxes on foreign buyers in Vancouver and across Ontario to the latest mortgage qualification rules from the commercial bank regulator.
“The latest round of policies tightened underwriting standards in the uninsured mortgage market,” she added in a recent outlook, warning that new restrictions could drive “marginal” borrowers further into the arms of “unregulated, shadow-banking” lenders.
And “foreign buyers could prompt additional bouts of froth and price spike in other cities (e.g. Montreal, Ottawa),” Ms. Peterson said.
Everyone has something to say about Canada’s housing markets and the debt levels that climbed as home prices spiked, from groups such as the Bank for International Settlements and the Organization for Economic Co-operation and Development to credit-rating agencies and bank analysts.
It’s largely about the Vancouver and Toronto areas, of course, and we’ve already seen those November numbers on sales and prices, which will factor into CREA’s national report on Thursday. The group also plans to release updated forecasts.
Bank of Montreal expects the report to show existing home sales rose 2 per cent in November from a year earlier, with average prices up 5 per cent and the MLS price index, which is seen as a better measure, up 9.5 per cent.
An asset price gain of 9.5 per cent would be nothing to sneeze at, but consider this: That would mark the slowest rate of 2017 and a sharp decline from the peak of almost 20 per cent in April, noted Benjamin Reitzes, BMO’s Canadian rates and macrostrategist.
“Existing home sales likely rose in November, breaking a seven-month losing streak,” Mr. Reitzes said.
“A big improvement in Toronto provided a lift, with sales down about 13 per cent, a significant move from the 35-per-cent average decline over the past five months,” he added in a forecast on Thursday’s numbers.
“The mix of activity has changed from the booming sales seen earlier this year, with condos now driving the gains instead of single-family homes. A similar dynamic is playing out in Vancouver, where sales continue to bounce back, rising more than 20 per cent year over year, while Fraser Valley activity surged nearly 40 per cent.”
Ottawa, Montreal and the Prairie regions are also picking up, Mr. Reitzes said, adding there could be a stronger-thannormal pace in what is traditionally a soft December as buyers scramble to beat new Jan. 1 mortgage rules from the Office of the Superintendent of Financial Institutions (OSFI).
As for Toronto, the latest numbers are “further evidence that the market is shrugging off the recent policy-induced turbulence,” Toronto-Dominion Bank economist Rishi Sondhi said.
The Greater Toronto Area is a work in progress, with active listings in November more than double the levels of a year earlier.
“Not shockingly, prices continue to correct in the region after making like bitcoin to start the year,” BMO chief economist Douglas Porter said.
“Detached-home prices in the GTA are now down almost 6 per cent year over year and are – gasp! – back below the $1-million threshold on average.”
Also worth noting is that the home-ownership rate across Canada has declined, to 67.8 per cent last year from 69 per cent five years earlier. It fell “quite sharply” for young, first-time buyers, noted Will Dunning, chief economist at Mortgage Professionals Canada.
“This ends a generation-long rise in the ownership rate,” Mr. Dunning said.
“The gradual rise in the ownership rate during 1976 to 1991 can be attributed to economic progress,” he added in an indepth report on the housing and mortgage markets.
After that, the market was driven by low interest rates and less-expensive housing, such as condos and townhomes.
“Whether the drop in the home-ownership rate in 2016 is a pause in a long-term trend or a reversal of the long-term trend remains to be seen, but the signs are not encouraging.”
FOMO, or fear of missing out, helped drive the markets until recently, but the “period of panic did not last very long, and was replaced by caution,” Mr. Dunning said.

DECEMBER 11, 2017. Why the world is agog over Canadian home prices and debt: A special report
MICHAEL BABAD, Columnist

Some of the "madness" in Canada's housing markets may have abated, but observers fear sanity may be short-lived and that many families are now in a precarious position as interest rates rise.

Indeed, Vancouver's inflated market is rebounding from its tax-induced slump, and economists believe Toronto could follow the same path.

We'll hear a lot more about it this week when the Canadian Real Estate Association releases its look at how sales and prices fared in November and Statistics Canada reports on the debt burden among households, already among the most troubling levels in the world and expected to rise higher still.

"Ten years of macroprudential policies have helped to mitigate household borrowing behaviour threats to the financial system, but risks still remain," Citigroup economist Dana M. Peterson said of the various measures taken in Canada, from taxes on foreign buyers in Vancouver and across Ontario to the latest mortgage-qualification rules from the commercial bank regulator.

"The latest round of policies tightened underwriting standards in the uninsured mortgage market," she added in a recent outlook, warning that new restrictions could drive "marginal" borrowers further into the arms of "unregulated, shadow-banking" lenders.

And "foreign buyers could prompt additional bouts of froth and price spike in other cities (e.g. Montreal, Ottawa)," Ms. Peterson said.

Everyone has something to say about Canada's housing markets and the debt levels that climbed as home prices spiked, from groups such as the Bank for International Settlements and the Organization for Economic Co-operation and Development to credit rating agencies and bank analysts.

Here's a look at the numbers, issues and observations that illustrate how the world is absolutely agog over Canada's housing markets:

State of the markets

It's largely about the Vancouver and Toronto areas, of course, and we've already seen those November numbers on sales and prices, which will factor into CREA's national report on Thursday. The group also plans to release updated forecasts.

Bank of Montreal expects the report to show existing home sales rose 2 per cent in November from a year earlier, with average prices up 5 per cent and the MLS price index, which is seen as a better measure, up 9.5 per cent.

An asset price gain of 9.5 per cent would be nothing to sneeze at, but consider this: That would mark the slowest rate of 2017 and a sharp decline from the peak of almost 20 per cent in April, noted Benjamin Reitzes, BMO's Canadian rates and macro strategist.

"Existing home sales likely rose in November, breaking a seven-month losing streak," Mr. Reitzes said.

"A big improvement in Toronto provided a lift, with sales down about 13 per cent, a significant move from the 35-per-cent average decline over the past five months," he added in a forecast on Thursday's numbers.

"The mix of activity has changed from the booming sales seen earlier this year, with condos now driving the gains instead of single-family homes. A similar dynamic is playing out in Vancouver, where sales continue to bounce back, rising more than 20 per cent year over year, while Fraser Valley activity surged nearly 40 per cent."

Ottawa, Montreal and Prairie regions are also picking up, Mr. Reitzes said, adding there could be a stronger-than-normal pace in what is traditionally a soft December as buyers scramble to beat new Jan. 1 mortgage rules from the Office of the Superintendent of Financial Institutions.

As for Toronto, the latest numbers are "further evidence that the market is shrugging off the recent policy-induced turbulence," said Toronto-Dominion Bank economist Rishi Sondhi.

The Greater Toronto Area is a work in progress, with active listings in November more than double the levels of a year earlier.

"Not shockingly, prices continue to correct in the region after making like bitcoin to start the year," said BMO chief economist Douglas Porter.

"Detached home prices in the GTA are now down almost 6 per cent year over year and are – gasp! – back below the $1-million threshold on average."



Also worth noting is that the home ownership rate across Canada has declined, to 67.8 per cent last year from 69 per cent five years earlier. It fell "quite sharply" for young, first-time buyers, noted Will Dunning, chief economist at Mortgage Professionals Canada.

"This ends a generation-long rise in the ownership rate," Mr. Dunning said.

"The gradual rise in the ownership rate during 1976 to 1991 can be attributed to economic progress," he added in an in-depth report on the housing and mortgage markets.

After that, the market was driven by low interest rates and less-expensive housing such as condos and townhomes.

"Whether the drop in the homeownership rate in 2016 is a pause in a long-term trend or a reversal of the long-term trend remains to be seen, but the signs are not encouraging."

FOMO, or fear of missing out, helped drive the markets until recently, but the "period of panic did not last very long, and was replaced by caution," Mr. Dunning said.

At the same time came the provincial measures in British Columbia and Ontario, followed by OSFI's move to making it harder to qualify for a mortgage. Let alone that inflated markets had priced so many people out of the game.

But "we should expect that resale activity will trend upwards over time: A growing population means that there are more potential buyers; concurrently, ongoing completions of new housing means that there is more housing in existence that could possibly be sold," Mr. Dunning said.

Over/under

Over, obviously. As in, overvalued and overextended.

Inflated prices in Canada are no doubt the envy of homeowners around the world, with the possible exception of Sweden, Australia and New Zealand who, as Mr. Porter might put it, are also making out like bitcoin bandits.

But not the envy of policy makers in countries where housing and debt aren't out of control.

Canada ranks high by various measures.

"OECD real house prices dipped following the 2008 financial crisis and remain below the 2007 high," said Alvin Tan of Société Générale.

"The U.S. in particular suffered a significant drop in national real house prices in the four years between 2008 and 2012," he added in a report on housing as it relates to currency outlooks.

"However, housing prices in Sweden, Australia, New Zealand and Canada barely stopped rising during the crisis and have ascended much higher over the past decade. These same countries now have among the highest household debt burdens, too."

Among the statistics Mr. Tan cited are these:



"Observing how the price-to-rent and price-to-income ratios have evolved since 2010, we notice that some countries have experienced strong growth in one indicator but less in the other," Mr. Tan said.

Hold that thought.

"We also notice that New Zealand, Canada and Sweden are among the top four countries in the sample for both indicators."

And here's a telling chart:



Most observers believe the Canadian markets are, at this point, headed for a soft landing rather than a meltdown.

As Derek Holt, head of capital markets economics at Bank of Nova Scotia, put it in a study last week: "Housing moderation, no bust in Canada."

Housing markets, Mr. Holt said, are supported by demographics, the nature of the mortgage market and a "big equity buffer."

What we owe

There are two key measures: One looks at the amount of our debt relative to our disposable income, the other at the cost of juggling it, also compared to how much we have to spend.

On the first count, household debt to disposable income now stands at almost 168 per cent, which means we owe $1.68 for every dollar of disposable income.

On the second, the debt-service ratio is just over 14 per cent, which Citigroup's Ms. Peterson expects to rise to 16.5 per cent by 2020 as interest rates climb.



Statistics Canada is expected to report Thursday, 30 minutes before the CREA numbers, that it's getting worse, possibly hitting a fresh high.

Economists believe this third-quarter report could show the debt-to-income ratio nudging the 170-per-cent mark.

"Canada's household debt ratio likely hit another record high in Q3 as debt growth continued apace, while income growth couldn't quite keep up," said BMO's Mr. Reitzes.

"With the new OSFI rules set to take effect on Jan. 1, 2018, activity could pick up in Q4 in an effort to get ahead of the change," he added.

"That suggests we'll see yet another record high debt ratio in Q4, before we potentially get some flattening or a drop at least in the early part of 2018. Seasonally, debt ratios have risen in every Q3 since 1990 (an average of 1.2 percentage points), so an increase should not be a surprise."

At this point, we're pretty good about our monthly payments, with defaults at a low level. But some worry there could be more adult delinquents as rates rise.

"Over all, Canadian balance sheets are in decent shape, despite the persistent concerns about debt burdens," Mr. Reitzes said.

"The question now is: How sensitive are households to higher rates? Time will tell."

That's what everyone wants to know.

"This is in line with what we are seeing at the Credit Counselling Society, growing debt levels across all age demographics to the point where over 50 per cent of those contacting us for assistance are overwhelmed by their financial situation," the group's president, Scott Hannah, said of a recent Statistics Canada survey that shows it's much harder now to become debt-free.

Scotiabank's Mr. Holt isn't overly worried, though, noting that defaults are low, and traditionally have been even during recessions.



"Canada has witnessed some big price corrections since the late 1980s that corresponded with big shifts in the macro environment, notably in Toronto and Vancouver, and yet each time mortgage arrears barely budged," he said.

"Implication? Originations are at greater risk than charge-offs."

Potential impact

Well, the worst-case scenario would be a meltdown, mayhem, we lose our jobs and we forfeit our homes.

No one expects that, but that doesn't mean risks don't abound.

Among the optimistic signals is that the Bank for International Settlements, a group made up of central banks, recently lowered its alarm from red to yellow.

The BIS measures what's known as the credit-to-GDP gap, which compares that ratio to its long-term trend. If a country is above 10 – which means 10 percentage points above the norm – there's a big risk of a financial crisis.

Canada had been above 10, but recently eased to 9.4, which means there's still a threat but not as severe.



"Apart from housing market valuation, another equally important consideration is the household debt burden," said Société Générale's Mr. Tan.

"It is after all the nexus between housing prices and the credit market that is the issue for financial stability. If we look at the ratio of household debt to disposable income, Norway and Australia are ahead, but Sweden, Canada and New Zealand are not far behind either."

Of course, uncertainty is widespread in this era, and life depends on everything from geopolitics to interest rates to the fate of the North American free-trade agreement, which is now being renegotiated.

The Bank of Canada raised rates twice this year, then paused, and markets are waiting for signals of what comes next. The central bank says the situation is improving along with policy measures, and it's monitoring the impact of this year's tightening.

But "the global monetary policy tightening trend may place increased upward pressure on bond yields at a pace that Canadians would not be able to absorb," said Citigroup's Ms. Peterson, referring to the rise in mortgage rates, which are linked to the bond market.

And, obviously, anything is possible in Donald Trump's America.

"The housing market could also become a bigger issue for Canada if the NAFTA renegotiation collapses and the United States pulls out, which would be a negative shock to the Canadian economy," Mr. Tan said.

So the jury, as they say, is out. But it's not looking like a guilty verdict just yet.

"High household debt (around 168 per cent of disposable income, or just above 100 per cent of GDP, compared with 90 per cent in the U.S.) and the potential for a correction in house prices increase downside risks to the growth forecast as interest rates rise," the Fitch Ratings agency said in its latest outlook.

"The household debt service ratio, which is already at 14 per cent, relatively high by historical standards, is set to rise, but very gradually. Measures of loan impairment are at cyclical lows, and Fitch expects them to rise but sees bank ratings as robust to these potential shocks."

INDUSTRY

REUTERS. DECEMBER 11, 2017. Small Canadian miners in pole position for electric vehicle battery boon
Nicole Mordant

VANCOUVER (Reuters) - Canadian developers of cobalt and lithium mines stand to benefit from a round of investments from the makers of electric vehicles and the batteries powering them, a potential game-changer for small miners short on money to develop deposits of these critical battery ingredients.

Toronto-listed cobalt companies, Ecobalt Solutions and Fortune Minerals, are in talks, ranging from preliminary to more advanced, with more than a dozen groups, including car and battery makers, on financing their projects, their chief executives told Reuters.

The interest in miners from downstream players along the battery supply chain - a new area of investment for most - would provide a life-line to miners at time when equity funding for developers remains relatively tight after a five-year downturn on weak metals prices.

“We anticipate additional transactions in the coming months and years. It is a function of demand-supply imbalance,” said John Kanellitsas, President and Vice Chairman of Lithium Americas Corp, which raised nearly $300 million this year for a project in Argentina.

A string of potential financing deals in Canada comes after a handful of predominantly lithium miners in Australia - the world’s biggest lithium producer - secured investment from mainly Chinese automakers and battery makers this year looking to lock in future raw material supply.

For a FACTBOX on recent deals, click:

Lithium mine developers have been able to secure funding earlier than their cobalt peers as fears of a supply shortage started in late 2015, when cobalt was still in surplus.

Like lithium, cobalt’s price has doubled - but most of that upswing has come this year on concerns of multi-year shortfalls in the next decade as demand from the electric vehicle sector surges.

Cobalt’s fortunes are more closely tied to batteries than lithium‘s: about 55 percent of all cobalt goes into battery chemicals compared to about 40 percent for lithium, according to a Dec. 4 BMO Capital Markets report.

Although there are no guarantees that deals will be struck, the cobalt miners, who have been advancing their projects for more than a decade, are in their strongest position yet to secure funding, said Cormark Securities analyst MacMurray Whale.

That is because of deficit forecasts due to constrained supply and expected soaring demand from the electric vehicle market. “All those elements together suggest to me that it can’t be better,” Whale said.

MINING HUB IN CANADA

With more than 1,200 publicly listed mining companies, Canada has long been the global hub for mine developers with projects around the world.

Vancouver-based Ecobalt’s “path forward” is to first sign a long-term supply agreement, called an offtake, with one or more customers to provide a portion of the funds it needs to develop its Idaho cobalt project, CEO Paul Farquharson said in an email.

Once in place, this would significantly lower the risk for the project, making it more attractive for banks to provide debt financing and other investors to fund the balance.

Ecobalt outlined plans on Dec. 7 to produce for offtake a cobalt concentrate, a less-processed cobalt product than initially planned - a step that could slash as much as $100 million, according to analysts, off its previous project capital cost estimate of $187 million.

Ecobalt, whose Idaho project is the only fully-permitted, primary cobalt deposit in the United States, is the most likely of the Canadian cobalt developers to secure financing, possibly within six months, said Eight Capital analyst David Talbot.

Canada’s Nemaska Lithium and Mason Graphite, which both have projects in Quebec, could also secure funding in coming months, Talbot said.

Graphite is another battery ingredient but unlike cobalt and lithium, batteries are not graphite’s main end-use.

Ecobalt’s Idaho project has unique advantages over other projects including that around 75 percent of its revenue will come from cobalt and that it is located in a safe political jurisdiction, Talbot said.

Almost all cobalt is produced as a by-product from copper and nickel mines, meaning output increases are dependant on other markets.

More than half of the world’s cobalt comes from the Democratic Republic of Congo (DRC), a country racked by political instability and legal opacity, and where child labor is used in mines - a worry for automakers looking to secure ethically-sourced battery raw materials.

Fortune, which is seeking more than $700 million to develop its Nico cobalt mine and processing plant in Canada, expects to secure finance in 2018 once it releases a feasibility study on an expanded project, CEO Robin Goad said.

“Our biggest advantage is to be able to market our project as a Canadian source of supply,” Goad said.

Additional reporting by Tom Daly in Beijing; Editing by Denny Thomas and Edward Tobin

HONDURAS

Global Affairs Canada. December 10, 2017. Statement by the Minister of Foreign Affairs on the situation in Honduras

Ottawa, Ontario - The Honourable Chrystia Freeland, Minister of Foreign Affairs, today issued the following statement:

“Canada is closely following the post-election situation in Honduras. We lament the deaths and injuries that have occurred as a result of violence following the election. Those responsible must be held accountable.

“Canada supports the important work of the Organization of American States (OAS) and EU electoral observer missions in Honduras  We welcome the Supreme Electoral Tribunal's efforts to implement all the recommendations of the OAS Electoral Observation Mission and call upon it to continue until all recommendations are implemented.

“Canada calls upon the Honduran authorities to reinstate constitutional rights and guarantees without delay. Democratic principles, human rights and the rule of law must be upheld.”

________________

LGCJ.: