CANADA ECONOMICS
NAFTA
Prime Minister to travel to the United States Ottawa, Ontario - January 19, 2018
The Prime Minister, Justin Trudeau, today announced that he will travel to the United States from February 7 to 10, 2018.
This visit – which includes stops in Los Angeles, San Francisco, and Chicago – will provide an opportunity for the Prime Minister to further strengthen the deep bonds that unite Canada and the United States.
In the Los Angeles area, the Prime Minister will deliver remarks at the Ronald Reagan Presidential Foundation and Institute in Simi Valley. During the remarks, he will underscore the interconnectedness of the Canada-U.S. economies.
In San Francisco, the Prime Minister will meet with local business leaders and entrepreneurs to explore opportunities for increased collaboration between our countries.
Before heading to California, the Prime Minister will meet with key officials in Chicago and deliver a speech at the University of Chicago Institute of Politics to highlight the importance of public service, and how it can contribute to a prosperous middle class and stronger Canada-U.S. economic and political ties.
Quote
“Canadians and Americans know we are all better off when we work together to grow the middle class, and create more opportunities for people on both sides of the border. I look forward to meeting with government and business leaders in the United States again to explore new opportunities for collaboration and growth, so we can build a more prosperous future for people in both countries.”
—The Rt. Hon. Justin Trudeau, Prime Minister of Canada
Quick Facts
- Prime Minister Trudeau last visited the United States in October 2017.
- Canada and the United States share one of the largest trading relationships in the world. Bilateral trade between the two countries was valued at nearly $882 billion in 2016, and Canada is the largest secure supplier of energy to the U.S.
- The two countries share the longest, secure border in the world, over which some 400,000 people and $2.4 billion worth of goods and services cross daily.
- Canada buys more goods from the United States than China, Japan, and the UK combined.
- Canada is the number one export destination for most American states, and cross-border trade and investment supports nearly nine millions jobs in the United States.
Canada and United States Relations: http://
Toronto, Ontario – Canada and Mexico enjoy one of the most productive relationships in the world, reinforced by a mutually beneficial trading relationship, which has helped to strengthen the middle class. Canada continues to work closely with Mexico to strengthen their trade relationship, modernize the North American Free Trade Agreement (NAFTA), and create new opportunities for workers, businesses and middle class families.
Today, Finance Minister Bill Morneau welcomed his Mexican counterpart, recently appointed Secretary of Finance and Public Credit José Antonio González Anaya, in Toronto to establish their working relationship. The meeting marked Secretary González's first visit to Canada in his new capacity. Minister Morneau and Secretary González discussed shared priorities that will create jobs and deepen the relationship between the two countries. Part of these discussions involved the importance of strengthening NAFTA as an engine of growth and prosperity for both countries. In September of last year, Minister Morneau travelled to Mexico City to meet with Secretary González's predecessor and addressed the Canada-Mexico Chamber of Commerce.
Minister Morneau and Secretary González also met with Canadian business leaders from the energy and mining sector, as well as the financial sector, who have investments and operations in Mexico. Minister Morneau highlighted the importance of fair, free and open trade, and Canada's plan to strengthen the global economy so that the benefits of growth are widely shared by the middle class.
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"Canada and Mexico enjoy a strong and mutually beneficial relationship—one that encourages greater trade and mobility of people in support of stronger, more inclusive and more innovation-driven growth. I welcome the opportunity to continue to deepen what is already a very strong, productive and rich relationship."
- Bill Morneau, Minister of Finance
Quick Facts
For more than 70 years, Canada and Mexico have shared a vibrant relationship characterized by deep people-to-people ties, rich cultural connections and growing trade and investment. The two countries work closely together in areas such as trade and investment, security, competitiveness and the environment to create a more integrated, sustainable and globally competitive North American economy:
- As a result of NAFTA, Canada's commercial relationship with Mexico is strong and growing. Mexico is Canada's third largest trading partner, and in 2016 Canada reached a milestone with bilateral merchandise trade totalling C$40.8 billion.
- Through the annual Canada-Mexico Partnership, more collaboration between the public and private sectors is being encouraged in areas such as: energy; agri-business; labour mobility; human capital; trade, investment and innovation; environment; mining; and forestry.
- These efforts have resulted in Canadian direct investment in Mexico totalling roughly C$17 billion (stock) in 2016, while Mexican direct investment in Canada is nearly C$2 billion (stock).
- Nearly 2 million Canadians travel to Mexico every year for business or pleasure.
By Eric Martin
- Negotiations extended to nine days from original six: people
- Two days toward end reserved for resolving toughest issues
Two full days, Jan. 27 and Jan. 28, have been tentatively reserved for reports to chief negotiators, who handle some of the toughest issues, and preparing for a Jan. 29 ministers’ meeting, according to the people, who asked not to be identified because the schedule isn’t public. Talks will begin on Sunday, with energy, investment, financial services, agriculture and other issues on the agenda, according to one of the people. Rules of origin -- one of the thorniest subjects, related to manufactured goods such as cars -- will be reserved for the final days of talks, as in previous rounds.
The U.S. is running out of patience with Canadian and Mexican resistance to key American proposals, according to two other people familiar with the matter. The U.S. is serious about its threat to withdraw if there’s no breakthrough on proposals the Trump administration has made that are intended to rebalance trade, said one of the people, who spoke on condition of anonymity because the negotiations aren’t public. The Trump administration wants to see serious counteroffers to U.S. demands like tightening content requirements for cars.
The tension between the U.S. and its trading partners, especially Canada, sets up a pivotal round of talks. With the negotiations on home turf, Justin Trudeau’s Liberal government will want to be seen standing up to Canada’s bigger neighbor and its Republican president. For its part, the U.S. won’t be happy with merely procedural discussions on how to address the administration’s toughest demands.
"There are indications that negotiations could produce some preliminary agreement on key points,” said Benito Berber, senior Latin America economist at Nomura Holdings Inc. Those are “the comments from Economy Minister Guajardo from Mexico suggesting flexibility on rules of origin, comments from Minister Freeland from Canada suggesting some possible counterproposals to controversial issues and the mere length of the Montreal round of nine days, the longest round so far.”
— With assistance by Andrew Mayeda, and Josh Wingrove
BLOOMBERG. 18 January 2018. Mexico Sees Growing Nafta Consensus Even Amid Trump Threats
By Eric Martin and Shery Ahn
- Ambassador says higher rules of origin for autos a possibility
- Next negotiating round set to begin in Montreal on Tuesday
Uncertainty about the path for the negotiation has whipsawed investors, with Trump alternating between saying he prefers to renegotiate and repeating his threats to leave or to use withdrawal as a negotiating tactic. Canadian officials said last week they believe the odds are rising that Trump will give notice of a withdrawal.
While negotiators, who began their work in August, have made progress on more mundane issues like rules of small businesses, they have yet to reach agreement on the topics that the White House sees as key to returning jobs to the U.S., like content for cars and government purchasing rules. Mexico’s ambassador to the U.S., Geronimo Gutierrez, said that the nation may be able to accept an increase in the minimum regional content for vehicles. At the same time, he reiterated the government’s long-standing position that it will leave the negotiating table if Trump gives notice of his intention to withdraw.
"We have consensus on around 40 percent of the issues already," Gutierrez said in an interview Thursday with Bloomberg Television in Washington. Raising the requirement for cars built in North America from the current 62.5 percent regional content is "certainly a possibility, but on rules of origin we need to be very careful to make sure they’re looked at almost on a product-by-product basis."
The U.S. demand for more North American, and specifically U.S. content in vehicles is among the most contentious issues on the North American Free Trade Agreement negotiating table. Negotiators largely avoided these issues in the latest talks in Mexico City in November and Washington in December, setting up the meetings in Montreal next week as potentially decisive.
The talks in Canada officially were scheduled to run from Jan. 23 to Jan. 28 and were extended on Thursday through Jan. 29, when the trade ministers from the three countries will meet.
Mexico and Canada began negotiating with the U.S. at the initiative of Trump, who has repeatedly said the Nafta accord led U.S. companies to fire workers and move factories to Mexico and has promised to pursue a better deal for America.
Nafta requires a vehicle to have a minimum of North American content in order to benefit from tariff exemptions when made in Mexico and sold in the U.S. The U.S. has proposed raising the so-called auto rules of origin to 85 percent North American content and requiring a new 50 percent U.S. content minimum.
Mexico Economy Minister Ildefonso Guajardo said last week that negotiators are close to completing work on 10 of the 30 Nafta chapters, including energy and telecommunications. The process for agreeing to dispute resolution mechanisms will be more difficult, he said.
The 47-year-old Gutierrez, who became ambassador to the U.S. last year following Trump’s election, spent the previous half decade as managing director of the North American Development Bank based in San Antonio, Texas. He has also been a deputy foreign minister for Latin America and North America. He studied economics together with Foreign Minister Luis Videgaray at Mexico’s Autonomous Institute of Technology in the early 1990s.
— With assistance by Ali Donaldson, and Josh Wingrove
BLOOMBERG. 19 January 2018. Trump Administration Losing Patience Over Nafta Talks
By Andrew Mayeda
- Negotiators want concrete progress next week in Montreal
- U.S. serious about threat to kill deal with Canada, Mexico
The U.S. is running out of patience with Canadian and Mexican resistance to key American proposals ahead of talks next week on a new Nafta, two people familiar with the matter said.
The U.S. is serious about its threat to withdraw from the North American Free Trade Agreement if there’s no breakthrough on proposals the Trump administration has made that are intended to rebalance trade, said one of the people, who spoke on condition of anonymity because the negotiations aren’t public. The Trump administration wants to see serious counteroffers to U.S. demands like tightening content requirements for cars.
U.S. negotiators also want tangible signs of movement from their trading partners on issues such as Mexican labor conditions, which the U.S. says keeps the nation’s wages artificially low, and a “sunset clause” that would cause the agreement to expire in five years unless the countries agree to renew it.
U.S. officials are particularly frustrated with what they see as Canada’s intransigence at the table, according to the two people. While Mexico has shown some flexibility on the U.S. proposals, Canadian officials are more reluctant to give ground, preferring to promote Prime Minister Justin Trudeau’s concept of a “progressive” trade agenda based on improving gender equality and the environment, among other things, one of the people said.
Canadian negotiators have presented “detailed proposals across the board” and there’s been progress on “the vital bread-and-butter trade issues,” Adam Austen, a spokesman for Foreign Minister Chrystia Freeland, said in an emailed response to questions on Friday.
“As is natural during any negotiation, there are issues where we do not all see eye-to-eye,” he said. “We will continue to work hard and negotiate constructively to modernize Nafta so it is a win-win-win for everyone.”
Lingering Tensions
The tension between the U.S. and its trading partners, especially Canada, sets up a pivotal round of talks in Montreal, which have been extended by three days and now will run Jan. 21 through Jan. 29. With the negotiations on home turf, Trudeau’s Liberal government will want to be seen standing up to Canada’s bigger neighbor and its Republican president. For its part, the U.S. won’t be happy with merely procedural discussions on how to address the administration’s toughest demands.
Canada has said it will present new ideas in the upcoming round of talks.
“We’re continuing to work diligently with our Mexican partners and with our American partners to make progress,” Canadian Finance Minister Bill Morneau told reporters Thursday in Toronto. “We’ve said that we have some constructive ideas on how to make a difference in terms of moving forward the Nafta discussions.”
‘Bad Joke’
President Donald Trump has repeatedly threatened to pull out of the deal, which he blames for America’s $63 billion deficit in goods and services with Mexico. In a tweet Thursday, the president called Nafta a “bad joke,” and reaffirmed his plan to build a wall with Mexico.
Mexico and Canada are casting the talks in a different light. Mexico’s Ambassador to the U.S. Geronimo Gutierrez said Thursday that differences are narrowing in the talks, while last week Canadian officials said the chances are rising that Trump will exit the deal.
Canadian Lecture
At a negotiating round in November in Mexico City, U.S. officials were flabbergasted when Canadian negotiators delivered a presentation suggesting the U.S. proposal on autos is misguided, an approach the U.S. considered to be more of a lecture than a counteroffer, one of the people said. Gutierrez said Thursday Mexico may be able to accept an increase in the regional content requirement for vehicles traded under the deal.
Nafta requires a vehicle to have a minimum of 62.5 percent North American content in order to benefit from tariff exemptions for autos assembled and traded in the region. The Trump administration has proposed raising the so-called auto rules of origin requirement to 85 percent North American content and add a new 50 percent U.S. content minimum.
— With assistance by Josh Wingrove, and Eric Martin
INTERNATIONAL TRANSACTIONS
StatCan. 2018-01-19. Canada's international transactions in securities, November 2017
- Foreign investment in Canadian securities: $19.6 billion, November 2017
- Canadian investment in foreign securities: -$4.6 billion, November 2017
- Source(s): CANSIM table 376-0131: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=3760131&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
Foreign investment in Canadian securities amounted to $19.6 billion in November, mainly purchases of Canadian bonds. Meanwhile, Canadian investors reduced their holdings of foreign securities by $4.6 billion, following strong acquisitions in October.
Foreign investment in Canadian bonds remains strong
Foreign investment in Canadian securities amounted to $19.6 billion in November, following an investment of $20.8 billion in October. Overall, foreign investors acquired Canadian debt securities but reduced their holdings of equities in the month.
Chart 1: Foreign investment in Canadian securities
Non-resident acquisitions of Canadian bonds stood at $17.8 billion in November. Foreign investors acquired $8.8 billion of federal government bonds, the fifth consecutive month of strong investment. From July to November, foreign acquisitions of federal government bonds have totalled $36.6 billion, compared with a divestment of $7.9 billion in the first half of the year (January to June). Non-resident investors also added $6.6 billion of private corporate bonds to their holdings in November. Canadian long-term interest rates were down by 16 basis points in the month.
Foreign investors resumed their acquisitions of Canadian money market instruments by adding $2.3 billion to their holdings in November, the first investment in three months. Foreign purchases of $1.9 billion in private corporate paper accounted for the majority of the investment. Canadian short-term interest rates were down by four basis points and the Canadian dollar was almost unchanged compared with the US dollar in November.
Non-resident investors reduced their holdings of Canadian equities by $507 million in November, the first divestment since January 2017. The reduction was related to cross-border merger and acquisition activities, as foreign portfolio investors rendered Canadian shares to foreign direct investors during the month. Foreign acquisitions of $1.0 billion of Canadian shares on the secondary market moderated the overall divestment in the month. Canadian stock prices edged up in November.
Canadian investors sell US shares
Canadian investors reduced their holdings of foreign securities by $4.6 billion in November, the first divestment in four months. The divestment was in both foreign debt securities and foreign equities.
Canadian investors sold $4.2 billion of foreign equities in November, following an investment of $14.3 billion in October. Record sales of $5.8 billion of US shares were moderated by purchases of non-US foreign shares in November. US stock prices were up by 2.3% in the month.
Canadian holdings of foreign debt securities were down by $385 million in November, the first divestment in five months. Sales of non-US foreign bonds were moderated by acquisitions of US Treasury instruments in the month. US long-term interest rates edged down, while short-term rates were up by 16 basis points in the month.
Chart 2: Canadian investment in foreign securities
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/180119/dq180119a-eng.pdf
MANUFACTURING
StatCan. 2018-01-19. Monthly Survey of Manufacturing, November 2017
- Manufacturing sales: $55.5 billion, November 2017, 3.4% increase (monthly change)
- Inventories: $75.4 billion, November 2017, 0.9% increase (monthly change)
- Inventory-to-sales ratio: 1.36, November 2017, -0.03 pts decrease (monthly change)
- Unfilled orders: $86.4 billion, November 2017, -0.9% decrease (monthly change)
- Source(s): CANSIM table 304-0014: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=3040014&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
Manufacturing sales rose 3.4% to a record high $55.5 billion in November, mainly due to higher sales in the transportation equipment, petroleum and coal product and chemical industries.
Overall, 12 of 21 industries, representing 81% of the manufacturing sector, posted increases in November.
Chart 1: Manufacturing sales rise
Higher petroleum prices contributed to the overall increase in manufacturing sales. Once the effects of these and other price changes are removed, manufacturing sales volumes rose 2.5% in November.
Transportation equipment, petroleum and coal product, and chemical industries post the largest gains
Sales of transportation equipment increased 9.1% to $10.6 billion in November, following two consecutive monthly decreases. Most of the increase in November was attributable to higher sales in the motor vehicle assembly (+14.2%) and motor vehicle parts (+11.3%) industries, reflecting increased production after motor vehicle assembly plant shutdowns in October. In constant dollars, sales volumes rose 14.7% in the motor vehicle assembly industry and 10.9% in the motor vehicle parts industry in November.
In the petroleum and coal product industry, sales rose for the fifth straight month, up 6.1% to $6.0 billion in November, primarily due to higher prices. After removing the effect of price changes, sales volumes decreased 0.3% in November.
Chemical industry sales rose 5.9% to $4.4 billion in November, after declining 2.7% in the previous month. The increases in this industry were widespread and were most pronounced in the basic chemical industry, as well as in the pharmaceutical and medicine industry.
Sales also increased in the food (+2.1%), fabricated metal product (+3.0%) and paper (+2.8%) industries.
Higher sales in current dollars were partially offset by decreases in the computer and electronic product (-2.5%) and machinery (-0.6%) industries.
Sales gains concentrated in Ontario
Sales were up in nine provinces in November, with most of the gain in Ontario.
Following two consecutive months of declines, sales in Ontario increased 5.8% in November to $25.4 billion. Higher sales in the transportation equipment industry (+12.7%) were responsible for two-thirds of the provincial increase. Sales were also up in the petroleum and coal product (+14.9%) and chemical (+8.6%) industries. A 1.7% decline in the machinery industry offset some of these gains.
In Quebec, sales rose 1.2% to $13.4 billion, following a 0.4% decline in October. Sales were up in 9 of 21 industries, led by the petroleum and coal product (+8.5%), primary metal (+3.3%) and food (+1.7%) industries. These gains were partly offset by lower sales in the aerospace product and parts (-4.5%) and machinery (-3.8%) industries.
The lone provincial decrease was in Manitoba, where sales were down 1.0% to $1.5 billion in November. This was the second consecutive monthly decline and was largely due to lower sales of durable goods. However, sales for January to November were 4.9% higher compared with the same period in 2016.
Inventory levels increase
Inventory levels rose for the second consecutive month, up 0.9% to $75.4 billion in November. Inventories were up in 12 of 21 industries, led by the transportation equipment (+1.6%) and petroleum and coal product (+4.4%) industries.
Chart 2: Inventory levels increased
The inventory-to-sales ratio fell from 1.39 in October to 1.36 in November, because the increase in sales was much larger than the increase of the inventories. The inventory-to-sales ratio measures the time, in months, that would be required to exhaust inventories if sales were to remain at their current level.
Chart 3: The inventory-to-sales ratio declines
Unfilled orders decline
Unfilled orders declined 0.9% to $86.4 billion in November. The decrease was mainly attributable to lower unfilled orders in the aerospace product and parts industry, as well as the fabricated metal product industry.
These declines were partially offset by an increase in unfilled orders in the electrical equipment, appliance and component industry, as well as the paper industry.
Chart 4: Unfilled orders decline
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/180119/dq180119b-eng.pdf
REUTERS. JANUARY 19, 2018. Canada November manufacturing sales post biggest gain in 2-1/2 years
OTTAWA (Reuters) - Canadian manufacturing sales jumped 3.4 percent in November, their biggest increase in 2-1/2 years, on strength in transportation equipment and petroleum and coal products, Statistics Canada said on Friday.
Sales set a record high of C$55.47 billion ($44.38 billion) on improved performances in 12 of 21 industries, representing 81 percent of the manufacturing sector. Volumes grew by 2.5 percent.
Analysts in a Reuters poll had forecast a 2.0 percent gain. The month-on-month jump was the biggest since the 3.4 percent advance in March 2015.
Sales of transportation equipment increased by 9.1 percent, largely reflecting increased shipments of motor vehicles and parts after assembly plants came back on stream after shutdowns in October. Higher prices pushed up the value of petroleum and coal products by 6.1 percent.
Weakness in the aerospace products and parts sector hit both new orders, which fell by 1.8 percent, and unfilled ones, which were down 0.9 percent.
Reporting by David Ljunggren; Editing by Lisa Von Ahn
ENERGY
StatCan. 2018-01-19. Pipeline transportation of oil and other liquid petroleum products, November 2017
- Pipeline receipts of crude oil from fields and plants: 21.4 million cubic metres, November 2017
- Exports of crude oil by pipeline: 13.4 million cubic metres, November 2017
- Closing inventories of crude oil: 12.3 million cubic metres, November 2017
- Source(s): CANSIM table 133-0006: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=1330006&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
Crude oil receipts
Pipelines received 21.4 million cubic metres of crude oil and equivalent products from Canadian fields and plants in November, down 2.4% from the same month in 2016. The vast majority originated in Alberta (86.8%), followed by Saskatchewan (10.4%).
Chart 1: Pipeline receipts of crude oil from fields and plants
Crude oil deliveries
Pipelines delivered 7.3 million cubic metres of crude oil to Canadian refineries in November, up 2.6% compared with the same month in 2016. Of this total, 64.7% was sent to refineries in British Columbia, Alberta and Saskatchewan, while the balance was delivered to refineries in Ontario and Quebec.
Exports and imports
Pipelines exported 13.4 million cubic metres of crude oil to the United States in November, down 7.6% from the same month a year earlier. The decrease was attributable to a pipeline leak in the United States in November. Imports by pipelines from the United States totalled 1.8 million cubic metres.
Chart 2: Exports and imports of crude oil by pipeline
Closing inventories
Closing inventories of crude oil in November remained stable at 12.3 million cubic metres compared with the same month in 2016.
Propane, butane, and other products
Pipelines received 3.0 million cubic metres of propane, butane, and other products from Canadian fields and plants in November, up 4.2% compared with the same month in 2016. Meanwhile, closing inventories of propane, butane and other products totalled 2.4 million cubic metres, down 3.5% from a year earlier.
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/180119/dq180119d-eng.pdf
The Globe and Mail. 19 Jan 2018. Alberta backs Keystone with 20-year shipping pledge. Keystone: Environmentalists call deal a ‘bailout’
JEFF LEWIS
KELLY CRYDERMAN
CALGARY - Alberta is stepping in to support TransCanada Corp.’s Keystone XL project, drawing scorn from environmentalists while inching the long-stalled pipeline closer to fruition.
TransCanada said on Thursday that it has secured shipping commitments totalling roughly 500,000 barrels a day for the $8-billion (U.S.) pipeline, including a deal with the Alberta government to ship 50,000 barrels a day of provincially owned crude on the line.
The announcement helps ease doubts that had persisted about the project’s commercial viability.
But the provincial support also shows major oil producers remain leery of signing binding 20-year contracts for a project with an uncertain and contentious future.
“They’re kind of taking that bet that the Gulf Coast is going to want to take that crude, mixed with the fact that it’s going to necessarily buoy the crude prices if they get this pipeline in,” Wood Mackenzie analyst Zachary Rogers said.
“Producers aren’t going to jump at the bit to sign a 20-year contract if they’re not entirely sure that the market is going to want the crude,” he added. “But signs this year are tilting in their favour.”
TransCanada called the Alberta government’s commitment to the project, which has a capacity of 830,000 b/d, “instrumental.” But it stopped short of issuing a final approval, saying it will seek additional long-term contracts with customers.
battered energy industry argues it needs more pipelines to fetch better prices for heavy oil sands crude, which has faced steep discounts as rising production tests the limits of existing pipeline capacity.
Barrels of the extra-heavy Western Canadian Select crude for future delivery on Thursday fetched around $39.71, a discount of $24 against the main North American benchmark price, according to broker Net Energy Inc.
Although it did not commit to building the project, TransCanada said early construction could start in 2019. Spokesman Terry Cunha said the company also requires federal permits in the United States and easements from landowners in Nebraska before proceeding.
The project would send crude from Hardisty, Alta., through Steele City, Neb., to the U.S. Gulf Coast, where big refineries geared to process superthick oil are eager to replace falling imports from Venezuela and Mexico.
Regulators in Nebraska last November narrowly approved an alternative to TransCanada’s preferred route through the state, removing a major hurdle for the project after approval by U.S. President Donald Trump last March.
But the project is one of three major proposals jockeying for commercial support, at a time longer-term growth prospects in the oil sands have slowed considerably. That has complicated efforts to secure customers for the project.
Last fall, TransCanada extended its deadline to sign up shippers. Enbridge Inc. had earlier called potential government support for the project an unnecessary subsidy, a sign of heightened competition between the cross-town rivals.
Enbridge declined comment on Thursday, but it has previously warned the industry could face a temporary glut of export capacity should Keystone XL, Kinder Morgan Inc.’s Trans Mountain and its own Line 3 pipeline all proceed as planned.
For now, however, oil sands producers remain beset by pipeline constraints as production surges, the result of investments made before the downturn. That has heaped pressure on prices for the extra-heavy oil and revived fears of shortterm export bottlenecks.
Alberta is supporting the pipeline with the small portion of crude it receives in lieu of cash royalties, a strategy it has used to backstop refineries and other projects such as pipelines it believes will provide the province with an economic boost.
Other Keystone XL shippers include Canadian Natural Resources Ltd., Suncor Energy Inc. and Cenovus Energy Inc.
The latest deal partly replaces the 100,000-b/d, 20-year commitment – worth nearly $5-billion (Canadian) – that the Alberta government had made on TransCanada’s now-cancelled Energy East pipeline project.
Environmentalists on Thursday characterized provincial support for Keystone XL as a “bailout” for a project that still faces various legal challenges and continued resistance from landowners along the new route.
“Any project that needs a government bailout amid a quagmire of ongoing legal and regulatory challenges has little chance of moving forward,” Adam Scott, of advocacy group Oil Change International, said in a statement.
Alberta Premier Rachel Notley said the province has strengthened its environmental case by placing a cap on greenhouse gas emissions from the oil sands. However, bitumen production is still increasing – and the demand for it is there if the heavy oil can get to market.
Ms. Notley said she signed the deal with TransCanada – and continues to push for the Trans Mountain expansion – over her concern that Albertans get the most gains possible from the province’s resources.
“By ensuring that we can transport our product as cheaply and as efficiently and as safely as possible, in all manners, we’re able to ensure greater return for Albertans,” she told reporters on Thursday.
BUDGET
Department of Finance Canada. January 18, 2018. Minister Morneau Hosts Pre-Budget Roundtable on Gender Equality in Toronto
Toronto, Ontario – When you have an economy that works for the middle class, you have a country where everyone can succeed. When women and men and gender-diverse groups are given equal opportunities to participate fully in the economy, they can drive economic growth and improve the quality of life for themselves, their families and their communities. As the Government prepares the next step in its plan to strengthen the middle class with Budget 2018, it will be working to ensure women and men and gender-diverse groups have all the tools they need to seize the opportunities of a more innovative economy.
The investments the Government of Canada has made in people, communities and the economy are working. Canada has created almost 700,000 jobs since November 2015, and the unemployment rate is at its lowest level in over 40 years. Since the beginning of 2016, Canada has had the fastest-growing economy in the G7.
Today, Finance Minister Bill Morneau joined a roundtable and Facebook Live event hosted by City of Toronto Councillor Kristyn Wong-Tam at The 519, Canada's largest LGBTQ2 community centre. During the meeting, participants discussed how the Government can build on its first ever Gender Statement in Budget 2017 and take further action to ensure that women, men and Canadians from gender-diverse groups can have an equal opportunity to thrive and succeed in Canada's economy.
This roundtable discussion marked Minister Morneau's final public consultation for Budget 2018. During these pre-budget consultations, Canadians are invited to provide their ideas and priorities on how the Government can make sure they are ready for the changes and opportunities that lie ahead, and on what their family, community and country need to face the future with confidence.
Canadians can submit their ideas to the Government as part of pre-budget consultations until January 26 at 11:59 p.m., through the website: www.budget.gc.ca/pbc18.
As Canada's economy continues to grow, it is important to ensure that the middle class and those working hard to join it have an opportunity to contribute to and benefit from that growth. That means continuing to make smart investments in people and communities to ensure continued progress for the middle class, and investing in lifelong learning to give Canadians the tools they need to find good, well-paying jobs in the economy of tomorrow. It also means ensuring that government policy and budget decisions consider impacts on different groups of women and men.
Quote
"Canadian women and men and gender-diverse groups should be able to realize their full potential and have the same opportunities to succeed. Meaningful discussions around gender, like the one I held at The 519 today, help us understand the challenges we face and the opportunities ahead as we advance the goal of equality for all Canadians."
- Bill Morneau, Minister of Finance
INNOVATION
Competition Bureau Canada. January 18, 2018. Growing the new economy: the integral relationship between competition and innovation. Speech. Remarks by John Pecman, Commissioner of Competition. Vancouver Competition Policy Roundtable. Vancouver, British Columbia
Thank you for inviting me to speak with you today.
I’ve just spent a great few days on the West Coast and I’ve had the opportunity to speak to three university classes on this trip. I have to say, it’s really refreshing to spend time with young people on the cusp of their careers. That’s not to say I don’t enjoy the company of those farther down their career path—which happens to be where I find myself these days—but there is something inspiring about engaging with young minds that are open to all the possibilities that the future holds. They will be the ones to shape the course of the next several decades. They will be the change-makers, the innovators.
Innovation is a much-used word these days. You can’t scroll through the headlines without coming across it. Even the news itself has been transformed by innovation. I can now watch the CBC’s nightly newscast on my smart phone, while watching the Leafs win on my tablet. Just five years ago, I’d have been flipping back and forth between TV channels (and watching the Leafs lose).
But my point is that innovation is, without question, one of the most talked about subjects across the globe.
From governments, to businesses, to academic institutions like the University of British Columbia, in places from Australia to Canada, everyone is engaged in what I like to call the great innovation conversation. Innovation has truly become the buzzword of the millennium.
So why are governments so engaged in the great innovation conversation? Why are so many declaring that they’ve embarked on an innovation agenda?
I would argue that there are many good reasons for that.
Many governments have realized that innovation is one of the most essential components of growing a modern, thriving economy—in both the short and long term. It can bring direct benefits to consumers in the form of better products and more convenient services. It can also benefit businesses by enabling firms to reduce costs, increase their productivity and contribute to overall economic growth.
Speaking more broadly, innovation holds the potential for solutions to some of our globe’s most pressing challenges such as health care, transportation, and environmental protection.
In short, innovation is key to inclusive economic growth in the rapidly evolving digital economy.
Let me provide two examples that illustrate this clearly.
First, electric cars. A decade ago, the idea that electric cars would soon play a significant role in the automotive sector seemed implausible to many. Cue 2018, where electric cars are no longer viewed with the same sort of skepticism. It now seems highly plausible that you or I will own an electric car in our lifetime. We can see charging stations cropping up across Canada – there are now four at UBC alone. The implications for the economy, transportation and the environment are significant.
The second example is just a short distance from the Competition Bureau’s head office. I’m referring to the Canadian tech company Shopify. This company brilliantly illustrates how the concept of innovation is critical to inclusive economic growth. It also underscores a point I’ll be coming to later about competition and innovation. Its three founders initially intended to sell snowboards, but became frustrated by the limited e-commerce options available to them. Realizing that merchants around the world faced the same challenge, they launched their own e-commerce platform in 2008. They began offering businesses and fellow start-ups a customizable online storefront.
Their platform effectively transformed e-commerce for small business, making it accessible for any merchant to set up an online storefront, regardless of size. Ten years later, the company is valued at more than $12 billion, and half a million merchants from 175 countries are using the Shopify platform as their gateway to the digital economy.
This includes a little electric car company called Tesla.
What’s significant about these two examples is that, while these innovations have had and will have profound impacts, they are also new inventions, new products that create value for which customers will pay. Economists call the competition around these new inventions “competition for the market”.
I’ll return to this notion later as I explore the Bureau’s two key touch points with respect to innovation: enforcement and advocacy. But before I do that, let me take a step back. I mentioned that governments the world over have thrown themselves into the great innovation conversation. What are they saying?
Innovation and government policy
Governments are constantly talking about inculcating and incubating innovation. We (economists, policy makers, legislators, academics, the media) spend a lot of time talking about how to foster innovation, how to put businesses in a position to do it, and how to instill it in the next generation. The Government of Canada talks about it in terms of an Innovation Agenda.
And here is what we talk about most often—creating hubs or superclusters, implementing attractive tax policies, direct investment and skills training programs.
Innovation and competition
But there is one piece that I believe too often gets left out of the innovation conversation—and that’s competition. Competition drives innovation! It’s an essential underpinning of any plan to grow innovation.
Competition is an integral part of innovation for a very obvious and intuitive reason. If companies did not face competition from rivals in a dynamic marketplace, what reason would they have to invest in innovation? What would drive them to improve? To go back to my earlier example, what drove car manufacturers to seriously invest in, and inevitably launch an electric vehicle?
The answer is competition. Competition keeps companies on their toes—perhaps even a little bit afraid. From another perspective, why would any entrepreneur, such as the trio that founded Shopify, innovate without the prospect of being able to displace incumbents?
This link between competition and innovation is by no means a novel idea: nearly 10 years ago Canada’s Competition Policy Review Panel said that “competition is the strongest spur to innovation and value creation, leading to a higher standard of living for all Canadians.”
Similarly, nearly two decades ago, distinguished Harvard business professor Michael Porter wrote: “While technological innovation is the result of a variety of factors, there is no doubt that healthy competition is an essential part. One need only review the dismal innovation record of countries lacking strong competition to be convinced of this fact. Vigorous competition in a healthy business environment is the only path to sustained productivity growth, and therefore to long term economic vitality.”
Of this we can be sure: when it comes to innovation, competition is key.
How does the Bureau foster innovation?
So we know that competition drives innovation. In open and competitive markets, companies are forced to adopt more efficient production processes, and offer new and improved products and services to customers.
But competition and innovation can be stifled in at least two ways. First, by private anti-competitive behaviour, and second, by overly restrictive government regulations. Let’s think of these as “roadblocks” on the path to innovation. This is where the Bureau comes in. The Bureau’s role is to clear these “roadblocks”, where possible, through a combination of enforcement and advocacy tools.
The Bureau plays a unique role in this regard. Government can take all of the measures that it wants to grow innovative firms, but if those firms cannot compete because of anti-competitive conduct or overly restrictive regulations, then the desired outcome will not be achieved.
Enforcement
We enforce the Competition Act to stop anti-competitive behaviour; the kind of behaviour that we know is innovation-stifling. This behaviour can take a number of different forms.
For example, it can be when incumbents abuse their dominant position to prevent an innovative start-up from entering the marketplace. It can also be cartel behaviour—when businesses collude, the pressure to innovate disappears.
Similarly, when companies make fraudulent claims, legitimate innovators suffer. The merger of two rivals may also reduce competition and diminish the drive to innovate within an entire industry.
In all of these scenarios, consumers end up worse off.
Two recent enforcement cases exemplify this kind of work well:
The first is our case against the Toronto Real Estate Board (TREB), which was found to have prevented its members from offering data through innovative brokerage models. In this case, we were able to identify specific innovative business practices and services that the conduct was directly stopping. This is an important case for enforcement generally and for innovation specifically. I’m proud of the Bureau’s work here – this case clearly underscores that crucial link between competition and innovation and the Bureau’s role in upholding both.
The Tribunal’s decision was recently upheld by the Federal Court of Appeal. TREB has announced that it intends to file for leave to appeal to the Supreme Court. The Bureau will oppose that application in order to make sure that a “roadblock” to innovation in the GTA real estate market is taken down without further delay.
The second case is the merger between Dow and DuPont, which was reviewed in multiple jurisdictions. In Canada, our innovation-related competition concerns were addressed through a consent agreement. I say innovation-related competition concerns for good reason. Our review specifically recognized the important role of innovation within the agricultural sector and identified concerns related to the proposed merger’s impact on innovation. This fact was made plain in our position statement, which included 17 references to “innovation”. Moreover, we were able to be fairly specific about how innovation would be harmed. For example, both Dow and DuPont were working to innovate within their respective herbicide portfolios. We found that the loss of innovation rivalry brought about by the merger would reduce the incentive to innovate, and therefore reduce the likelihood of bringing new and more effective products to market.
In other words, we identified specific “roadblocks” to innovation that likely would have led to consumer harm, and we obtained a remedy to avoid that outcome.
This merger was reviewed in a number of jurisdictions, and we collaborated closely with the European Commission, the U.S. Department of Justice and the Australian Competition and Consumer Commission. The Europeans published a highly detailed 915-page decision that also recognized the importance of innovation. It did something we did not do, however: it used the notion of “innovation spaces” (more commonly known as “innovation markets”) to support an argument that the merger would harm consumers by lessening innovation.
What is remarkable about this argument is that in no way does it require linking innovative activity to specific innovative products that benefit consumers; instead, the argument holds that the reduction in innovative activities itself constitutes harm to competition.
That’s important because, unlike the TREB case, this argument does not require identification of specific products that benefit consumers. In fact, the link between consumer benefit and innovation need not even be developed.
So, we have both recognized that dampening innovation can lead to harm to consumers and to competition. But we have done so in markedly different ways. This raises the question: how discernible does the “roadblock” to innovation have to be in order for an antitrust enforcer to take action to prevent harm to consumers?
Advocacy
Along with our enforcement work, advocacy is an important way that the Bureau fosters competition and innovation. Why? Because it can help to clear “roadblocks” to innovation that aren’t put up by businesses through their conduct or when they merge.
One example of our innovation-related advocacy work is our recently published white paper on big data.
Firms are increasingly using big data to drive innovation in many different industries. Some feel that big data offers great benefits to both individuals and businesses. Others believe that companies that control substantial volumes of it have the potential to undermine the competitive process. Through our big data paper, we’ve initiated a discussion about the role competition policy should play and how we can strike the right balance.
The truth is that we cannot even begin to anticipate all the ways that businesses may use data. This means that antitrust enforcers and governments need to keep asking themselves the following question: how do we take action or regulate in a market that is in a constant, rapid state of flux without inadvertently putting up “roadblocks” that could impede the very innovation we want to promote?
Keeping this in mind, what I’ve seen to date suggests to me that applying the tried and tested competition framework remains the best mechanism to preserve competition and, hence, innovation.
That is not a trivial statement, particularly in light of the fact that there are a number of influential people calling for enforcers to apply a different and more aggressive framework when it comes to data.
Another example of our innovation-related advocacy work is our FinTech market study. Our report covers technological innovation in various types of financial services. Again, like big data, it is nearly impossible to anticipate all the ways in which entrepreneurs will remake financial services.
Perhaps the most important findings of our FinTech study are related to the impact of regulation on innovation, and competition. They speak strongly to the need for balance and a principle-based approach.
We found that, on the one hand, excessive, heavy-handed regulation, or being slow to amend regulation to reflect current realities, can stifle innovation and in turn, economic growth.
Prominent entrepreneurs have been saying much the same thing for decades, albeit more colloquially. Jeff Bezos, CEO of Amazon, believes that you can’t innovate if you can’t experiment and break rules. And, as Asian e-commerce juggernaut Alibaba founder Jack Ma puts it, fostering innovation means giving businesses the freedom to “play”.
Now, as the head of an enforcement agency, I’m not suggesting we break any rules. What I am saying is that businesses need the room to experiment, to play, if we want them to innovate, and regulations should be formulated to enable that.
Other competition agency heads have expressed the same sentiment. Acting Chairman of the United States Federal Trade Commission (FTC) Maureen Ohlhausen advocates the principle of regulatory humility, which holds that regulators cannot have perfect foresight into the ways that businesses will need to “play” in order to come up with the next great product. Hence, regulatory interventions that impose strict, top-down solutions are unwise.
Our FinTech study also found that, on the other hand, a lack of regulation can hold back innovation in this space. For example, it is clear that few want to loan money or accept payment via a new platform that may fall outside of any regulatory framework. In certain markets such as financial services, regulation brings certainty and confidence for consumers and businesses alike.
What I am getting at is this: We need to strike the right balance. Regulation addresses genuine public interest concerns. At times, it is even necessary to create the grounds for innovation. But we need to address those concerns, and promote confidence, in a way that encourages competition as much as possible.
In some cases, finding this balance is easy. For example, a few years ago, the Bureau advocated for a relaxing of regulations in the taxi business that were stifling, and in some cases, entirely excluding, new and innovative entrants like Uber and Lyft. That was an easy call: not only did these new entrants bring innovative new services that consumers wanted; the added competition was driving incumbents in the taxi industry to improve their services and launch their own apps.
British Colombia is currently looking at this same issue, and these principles are applicable here and now.
In other cases, the questions are more complex.
Do competition agencies need a crystal ball?
Our big data and FinTech papers highlighted a much broader fact: competition authorities do not always have the luxury of knowing what new products, services or business models will emerge. The uncertainty—and the stakes—are very high. This makes the questions I have raised thus far very difficult to answer unequivocally.
The challenge is not knowing what the future will bring.
Fiona Scott Morton, a professor at Yale and formerly the chief economist at the Antitrust Division of the United States Department of Justice, recently asked, hypothetically, if WhatsApp had the potential to eventually displace Facebook in the market for messaging, should we take legal steps to prevent the two companies from merging? That’s a difficult question to answer because of the many uncertainties built into it. We have to look into the future, where any player could bring about disruptive change. Earlier, I mentioned the concept of “competition for the market”. Professor Scott Morton has argued that, in the digital economy, we may see more examples of competition “for the market” as opposed to competition “in the market.”
Now, it’s obvious that looking into the future is always, by definition, uncertain. That said, what is different about where we find ourselves today is that we have never before experienced this incredible pace and breadth of change. This means that the questions I have raised about innovation and dynamic competition will become increasingly common in the future, leading to greater challenges for competition authorities.
One approach to dynamic markets is to be conservative and limit ourselves to taking action where we can identify products, services and new business models that would likely emerge in the future. If we only take action in these types of cases, we risk permitting anti-competitive abuses solely because we lack certainty.
Another approach is for competition agencies to be less risk averse, and to take action even where we do not know what new products, services or business models may emerge. The cost of making a mistake in this kind of case is to potentially stifle innovation.
Perhaps the most important question to keep in mind when we are trying to find the right balance is this: which approach will lead to better outcomes for Canadians?
Conclusion
As I started my remarks today, I talked about being further down the road on my “career path”, exactly 34 years this month, all of it spent at the Competition Bureau.
As you can imagine, I’ve seen a lot of innovation over the course of those 34 years.
And if there’s one thing I’ve learned about innovation, it’s that innovation is essential to evolution and growth: for individuals, for organizations, for economies.
I believe innovation is critically important to the Canadian economy. I also believe that competition is critically important to innovation. And I believe those conclusions should be embraced with enthusiasm.
In the face of innovation, countries will either lead or they will lag. Overregulating, or being too prescriptive, is almost a guaranteed way to ensure that a country will lag its counterparts. Similarly, walking away from competition is a head start to winning the race to the bottom.
As I approach my departure this coming June, I am working hard to ensure that the Bureau will continue to support innovation through its enforcement, outreach and advocacy—with a focus on the important issues we are now facing in the rapidly-evolving digital economy.
We need to do this to ensure that consumers and businesses prosper in a competitive and innovative marketplace. To ensure that Canada is creating an environment that is ripe for innovation. And to ensure that competition takes a central part in the great innovation conversation.
At the same time, I want all of us to continue to ask hard questions like the ones I have raised today. And to seek answers to those questions.
I don’t pretend to have all of the answers. But I do know one thing: we need to make sure we don’t needlessly get in the way of the next trio of young, ambitious snowboard makers who have a great idea that could make the world just a little bit better.
Thank you.
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LGCJ.:
