CANADA ECONOMICS
INTERNATIONAL TRADE
The Globe and Mail. 13 THE CANADIAN PRESS. Feb 2018. Trump complains about Canadian trade practices, threatens global tax
ALEXANDER PANETTA, WASHINGTON
U.S. President Donald Trump is complaining about Canadian trade practices while threatening some as-yet-undefined international tax that has revived fears he might be contemplating new U.S. import penalties.
The President made the remarks at the White House on Monday while unveiling a longawaited infrastructure plan.
During a lengthy session with reporters, he complained about countries considered allies of the U.S.
He mentioned one directly to the north.
“Canada does not treat us right in terms of the farming and the crossing the borders,” Mr. Trump said.
“We cannot continue to be taken advantage of by other countries.”
It’s unclear what he was referring to. In the past, he has complained about Canada’s dairy controls and softwood lumber. Administration officials have also expressed anger over Canada’s wide-ranging attack at the World Trade Organization on the U.S. system for imposing duties.
Meanwhile, the White House played down the tax threat and various U.S. media outlets said there was nothing imminent.
Mr. Trump did promise more clarity on a new tax. More details could be coming this week, he suggested.
“We are going to charge countries outside of our country – countries that take advantage of the United States,” Mr. Trump said. “Some of them are socalled allies but they are not allies on trade. … So we’re going to be doing very much a reciprocal tax and you’ll be hearing about that during the week and the coming months.”
It’s unclear what type of tax he’s referring to. Earlier this year, the administration dropped the idea of a border-adjustment tax in its since-passed fiscal reform, because of widespread opposition on Capitol Hill.
The confusion was compounded by several factors: Congress sets tax rates – not the president. And Congress, which just completed a major tax reform, has shown little inclination to hike taxes.
Tariff rates, meanwhile, are negotiated at the WTO. Also, the idea wasn’t even mentioned in the White House’s 2019 budget proposal – which was released on Monday.
THE GLOBE AND MAIL. THE CANADIAN PRESS. FEBRUARY 13, 2018. White House downplays Trump's threat of a ‘reciprocal tax’
WASHINGTON - The White House is downplaying a threat from President Donald Trump to impose a new import tax.
A senior administration official says nothing formal is in the works.
The official says Trump was simply reiterating sentiments he's voiced for years about trade.
The president confused many trade-watchers Monday with remarks about a new tax.
Trump said there would be details in the coming days about something he called a "reciprocal tax" on imports — and he complained about the trade practices of Canada, China and other countries in making the threat.
The comments confused analysts for several reasons: Congress sets taxes, not the president; Congress rejected the idea of an import tax in its recent fiscal reform; the president's newly released budget proposal doesn't even mention the idea.
That doesn't mean other trade skirmishes aren't bubbling. The U.S. has just announced preliminary duties on pipe imports, including from Canada, in the latest example of ramped-up use of punitive measures since Trump took office.
DoC. 02/13/2018. U.S. Department of Commerce Initiates Antidumping Duty and Countervailing Duty Investigations of Imports of Large Diameter Welded Pipe from Canada, Greece, China, India, Korea, and Turkey
Today, U.S. Secretary of Commerce Wilbur Ross announced the initiation of new antidumping duty (AD) and countervailing duty (CVD) investigations to determine whether imports of large diameter welded pipe from Canada, China, Greece, India, Korea, and Turkey are being dumped in the United States and/or if producers are receiving unfair subsidies.
“With an 81 percent increase in trade cases initiated since President Trump took office, this Administration has made it clear that we will vigorously administer antidumping and countervailing duty laws,” said Secretary Ross. “When initiating a trade investigation, the Department of Commerce begins an open and transparent process that allows American companies and workers to gain relief from the market-distorting effects of injurious dumping and subsidization of imports.”
These AD and CVD investigations were initiated based on petitions filed by American Cast Iron Pipe Company (Birmingham, AL), Berg Steel Pipe Corp. (Panama City, FL), Dura-Bond Industries (Steelton, PA), Skyline Steel (Parsippany, NJ), and Stupp Corporation (Baton Rouge, LA). The estimated dumping margins alleged by the petitioners are 50.89 percent for Canada, 41.04 percent for Greece, 120.84 to 132.63 percent for China, 37.94 percent for India, 16.18 to 20.39 percent for Korea, and 66.09 percent for Turkey. The unfair subsidy programs alleged include export subsidies, inputs for less-than-adequate-remuneration, tax incentives, and subsidized loans from China, India, Korea, and Turkey.
In the AD investigations, the Commerce Department will determine whether imports of large diameter welded pipe from Canada, Greece, China, India, Korea, and/or Turkey are being dumped in the U.S. market at less than fair value.
In the CVD investigations, the Commerce Department will determine whether imports of large diameter welded pipe from China, India, Korea, and/or Turkey are receiving government subsidies.
If the Commerce Department makes affirmative findings in these investigations, and if the U.S. International Trade Commission (ITC) determines that dumped and/or unfairly subsidized U.S. imports of large diameter welded pipe from Canada, Greece, China, India, Korea, and/or Turkey are causing injury to the U.S. industry, the Commerce Department will impose duties on those imports in the amount of dumping and/or unfair subsidization found to exist.
In 2016, imports of large diameter welded pipe from Canada, China, India, Greece, Korea, and Turkey were valued at an estimated $66 million, $139 million, $26 million, $70 million, $150.3 million, and $116.1 million, respectively.
From January 20, 2017, through February 9, 2018, the Commerce Department has initiated 94 antidumping and countervailing duty investigations – an 81 percent increase from the previous period. The Commerce Department currently maintains 424 AD and CVD orders which provide relief to American companies and industries impacted by unfair trade.
Next Steps:
During the Commerce Department’s investigations into whether large diameter welded pipe is being dumped and/or unfairly subsidized, the ITC will conduct its own investigations into whether the U.S. industry and its workforce are being harmed by such imports. The ITC will make its preliminary determinations on or before March 5, 2018. If the ITC preliminarily determines that there is injury or threat of injury, then the Commerce Department investigations will continue, with preliminary CVD determinations scheduled for April 16, 2018, and preliminary AD determinations scheduled for June 29, 2018, unless these deadlines are extended.
If the Commerce Department preliminarily determines that dumping and/or unfair subsidization is occurring, then it will instruct U.S. Customs and Border Protection to start collecting cash deposits from all U.S. companies importing large diameter welded pipe from Canada, Greece, China, India, Korea, and/or Turkey.
Final determinations by the Commerce Department in these cases are scheduled for July 2, 2018, for the CVD investigations, and September 12, 2018, for the AD investigations, but those dates may be extended. If the Commerce Department finds that the imports subject to the investigations are not being dumped or unfairly subsidized, or the ITC finds in its final determinations there is no harm to the U.S. industry, then the investigations will be terminated and no duties will be applied.
Foreign companies that price their products in the U.S. market below the cost of production or below prices in their home markets are subject to “antidumping” duties. Companies that receive unfair subsidies from their governments, such as grants, loans, equity infusions, tax breaks and production inputs, are subject to “countervailing duties” aimed at directly countering those subsidies.
Fact sheet: https://enforcement.trade.gov/download/factsheets/factsheet-multiple-large-diameter-welded-line-pipe-ad-cvd-initiations-021218.pdf
THE GLOBE AND MAIL. REUTERS. FEBRUARY 13, 2018. U.S. investigating welded pipe trade with Canada, other countries
WASHINGTON - The United States is investigating whether manufacturers in Canada, China, Greece, India, Korea and Turkey are dumping large-diameter welded pipe into U.S. markets or are being unfairly subsidized by their governments, the Commerce Department said on Tuesday.
If the government makes a preliminary finding by March 5 that dumping or unfair subsidies are taking place it will begin collecting cash deposits from U.S. companies importing the pipe, the department said.
The probe covers welded carbon and alloy steel pipe larger than 16 inches (406.4 mm) in diameter. The pipe is generally used to transport oil, natural gas, slurry and steam and for piling, the department said.
The U.S. investigations, part of the 94 cases President Donald Trump's administration has opened since taking office, are aimed at protecting U.S. manufacturers in global markets, Commerce Secretary Wilbur Ross said in a statement.
The Commerce Department estimated that in 2016 imports of large-diameter welded pipe from Canada had a value of $66-million, China $139-million, India $26-million, Greece $70-million, Korea $150.3-million, and Turkey $116.1-million.
"Dumping" is the practice of selling goods at below market price.
NAFTA
REUTERS. FEBRUARY 13, 2018. Canada to face U.S. trade problems even if NAFTA is signed: Ottawa
David Ljunggren
OTTAWA (Reuters) - Trade challenges from U.S. firms will continue to cause turbulence for Canada even if talks to modernize NAFTA are successful, a senior Canadian government official said on Tuesday.
Canada sends 75 percent of its goods exports to the United States and is vulnerable to what Ottawa complains is increasing U.S. protectionism since President Donald Trump took power in January 2017.
Talks to update the North American Free Trade Agreement are moving slowly as Canada and Mexico seek to address a series of radical U.S. demands for change. The negotiations were supposed to wrap up by end-March look set to overrun by months.
“Even if a new NAFTA were to be signed tomorrow I think we would still face a lot of turbulence in our relationship with the United States on trade,” said Timothy Sargent, the top bureaucrat in Canada’s Trade Ministry.
Sargent, speaking to an Ottawa conference organized by the Canadian Global Affairs Institute, noted recent U.S. moves to impose duties on Canadian softwood lumber, commercial airliners and some paper products. All were prompted by complaints from American firms.
Sargent also cited Trump’s recent move to place duties on imports of solar panels.
“I think we can expect more of that,” he said. “The way the U.S. system is set up (makes) it very easy for businesses that think they face challenges to go and get countervail or antidumping actions. So I think there are very big challenges for Canada.”
Steve Verheul, Canada’s chief NAFTA negotiator, is due to address the conference later on Tuesday.
Last December Canada launched a wide-ranging trade complaint against the United States at the World Trade Organization, challenging Washington’s use of anti-dumping and anti-subsidy duties.
U.S. Trade Representative Robert Lighthizer, speaking at the end of the most recent NAFTA talks in Montreal last month, called the move “unprecedented, imprudent, even spiteful.”
Reporting by David Ljunggren; Editing by Bill Trott
- EVENT WEB SITE: https://www.eventbrite.ca/e/canadas-state-of-trade-at-home-and-beyond-registration-42006716219
- Canadian Global Affairs Institute: http://www.cgai.ca/
Por David Ljunggren
OTTAWA, Canadá (Reuters) - O negociador-chefe do Canadá em conversas para modernizar o Tratado Norte-Americano de Livre Comércio, o Nafta, disse nesta terça-feira que os Estados Unidos buscam enfraquecer o Canadá e o México em vez de garantir que todos os três membros do acordo comercial trilateral se beneficiem.
Steve Verheul disse que conversas haviam produzido pouco progresso em grandes questões até o momento e se queixou sobre a inflexibilidade de negociadores dos Estados Unidos.
Seus comentários foram facilmente as afirmações públicas mais intensas de um canadense envolvido nas conversas e refletiram o enorme desafio enfrentado por autoridades que tentam terminar trabalhos para atualizar o pacto de 1,2 trilhão de dólares até o início de abril.
“A abordagem dos EUA é sobre focar somente na perspectiva dos EUA, em vez da perspectiva norte-americana. Então eles estão buscando fortalecer os EUA e, ao fazerem isto, enfraquecem o Canadá e o México dentro da economia norte-americana”, disse Verheul em uma conferência em Ottawa organizada pelo Instituto Canadense de Questões Globais.
O presidente dos EUA, Donald Trump, tem frequentemente ameaçado abandonar o Nafta a não ser que ocorram grandes mudanças.
As conversas produziram pouco progresso, conforme o Canadá e o México buscam endereçar exigências dos EUA por reformas. As negociações deveriam terminar até o final de março – um prazo que autoridades dizem ter sido estendido para ao menos o início de abril – mas parece poder avançar por meses.
O Canadá fez diversas do que chama de propostas criativas para endereçar a insistência dos EUA de que a meta norte-americano de automóveis seja aumentada. Washington também quer uma cláusula que irá permitir que qualquer membro saia após cinco anos.
“Nós fizemos o que irei caracterizar como um progresso total relativamente limitado... a principal questão é que nós vimos flexibilidade limitada dos EUA, até mesmo em questões relativamente fáceis”, disse Verheul.
O representante comercial dos EUA, Robert Lighthzier, disse na segunda-feira que as conversas dos EUA com o México sobre o Nafta estavam indo bem. O México informou em 9 de fevereiro que a regra de origem de automóveis teria que ser fortalecida, mas não deu detalhes.
Por David Ljunggren
- EVENT WEB SITE: https://www.eventbrite.ca/e/canadas-state-of-trade-at-home-and-beyond-registration-42006716219
- Canadian Global Affairs Institute: http://www.cgai.ca/
Ottawa, Canada - Canada and the United States share a long-standing and deeply integrated trade relationship that supports good jobs on both sides of the border. The Government of Canada is determined to continue to work closely with the United States to strengthen the trade relationship and broaden opportunities for workers, businesses and middle-class families of both countries.
As part of ongoing efforts, the Honourable Chrystia Freeland, Minister of Foreign Affairs, will visit Washington, D.C., on February 14, 2018, to meet with key representatives from the U.S. administration and the Senate.
In her discussions, the Minister will emphasize the importance of NAFTA and Canada-United States trade as an engine of growth and prosperity for the people of both countries.
Quotes
“The connections between Canada and the United States are as old as our countries themselves—from deep family ties to businesses that work back and forth across the border to the world’s most important trade relationship. For 24 years, NAFTA has helped our two countries create opportunities, well-paying jobs and a better life for Canadians and Americans. All of us benefit when we work together, and that will continue to be our focus.”
- Hon. Chrystia Freeland, P.C., M.P., Minister of Foreign Affairs
Quick facts
- Canada and the United States share the world’s longest secure border, over which approximately 400,000 people, and goods and services worth $2.4 billion, cross daily.
- Canada and the United States share one of the largest trading relationships in the world. Canada is the largest customer for the United States–larger than China, Japan and the United Kingdom combined.
- Canada is the number one export destination for most American states, and cross-border trade and investment support nearly 9 million jobs in the United States.
- Canada and the United States share values and interests on a range of international issues, including human rights, democracy, development, defence, nuclear non-proliferation and counterterrorism.
POPULATION
StatCan. 2018-02-13. Canada's population estimates: Subprovincial areas, July 1, 2017
- CMAs population estimate: 25,893,686; July 1, 2017; 1.5% increase (annual change)
- Source(s): CANSIM table 051-0056: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=0510056&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
- Proportion of population living in a CMA: 70.5%; July 1, 2017; 0.2 pts increase (annual change)
- Source(s): CANSIM table 051-0001: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=0510001&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
On July 1, 2017, 7 in 10 Canadians (70.5%), or 25,893,686 people, were living in a census metropolitan area (CMA). Canada's three largest CMAs—Toronto, Montréal and Vancouver—were home to more than 1 in 3 Canadians (35.6%).
From July 1, 2016 to June 30, 2017 (2016/2017), population growth was three times higher in CMAs (+1.5%) than in areas outside of the CMAs (+0.5%). Population growth in the CMAs in 2016/2017 was comparable with the growth in 2015/2016.
These findings are from the publication Annual Demographic Estimates: Subprovincial Areas, which was updated today.
The population is growing faster in the Prairie census metropolitan areas and in some Ontario census metropolitan areas
The 10 CMAs with the highest population growth in 2016/2017 were in either the Prairies or Ontario. In 2016/2017, the population growth rate was 2.0% or higher in four CMAs: Saskatoon (+2.8%), Regina (+2.4%), Guelph (+2.2%) and Ottawa–Gatineau (Ontario part) (+2.2%). These were followed by the CMAs of Toronto (+1.9%), Oshawa, Winnipeg, Edmonton and Calgary (+1.8% each), and Kitchener–Cambridge–Waterloo (+1.7%).
This was the first time since 2009/2010 that neither Calgary nor Edmonton was among the top five CMAs with the strongest population growth in Canada. The population growth of CMAs in Alberta has been lower since 2013/2014, coinciding with the commodities downturn that began in 2014. This downturn was also associated with the rising unemployment rate in the province from the beginning of 2015, which reached a peak at the end of 2016.
The population growth rates in the Guelph, Toronto, and Ottawa–Gatineau (Ontario part) CMAs in 2016/2017 were the highest seen in the past 15 years. International migration was the main driver of growth in the Toronto and Ottawa–Gatineau (Ontario part) CMAs, while it contributed to a sizeable portion of the population increase in the Guelph CMA.
The population decreased in the Saguenay (-0.2%) and Thunder Bay (-0.1%) CMAs for the fourth consecutive year. The Saguenay CMA population decrease was partly attributable to recurring losses of young adults aged 18 to 24 years leaving the CMA to live elsewhere in Quebec. In Thunder Bay, the number of deaths surpassed the number of births, and has done so since 2006/2007, contributing to its population decline.
Population growth also varied in areas outside of the CMAs. In 2016/2017, population growth in Prince Edward Island (a province with no CMAs) was 1.7%, the highest growth rate for an area outside of a CMA.
Population decreases were recorded in the non-CMA parts of Newfoundland and Labrador (-1.0%), Nova Scotia (-0.3%), New Brunswick (-0.1%) and Alberta (-0.1%). The population of the non-CMA part of Alberta fell for the second consecutive year, following a period of growth that lasted until 2014/2015. The population decrease in the non-CMA parts of three Atlantic provinces marks the continuation of a long-term trend.
Chart 1: Population growth rates by census metropolitan area, 2016/2017, Canada
International migration remains the main driver of growth of census metropolitan areas
The international migratory increase in CMAs continued to grow in 2016/2017. The international migration growth rate (+1.2%) in Canadian CMAs was the highest seen in the past 15 years. International migration remains the main contributor to the population growth of CMAs (accounting for 78% of total population growth), up from 75% in 2015/2016.
The international migration growth rate increased in most CMAs, excluding CMAs in the Atlantic and Prairie provinces, where it was relatively stable. Despite not increasing, the international migration growth rate of the majority of CMAs in the Prairies was among the 10 highest in Canada. The Regina CMA had the highest international migration growth rate (+2.1%) among all CMAs in Canada for a second consecutive year.
In absolute numbers, the highest international migration growth was once again recorded in the Toronto (+113,074), Montréal (+52,158) and Vancouver (+31,541) CMAs.
The number of non-permanent residents rose significantly, especially in Ontario CMAs and in Canada's three largest CMAs, with values rarely or never seen in the observation period from 2001 to 2017. In 2016/2017, Canada recorded a significant increase in the number of study permit holders and work permit holders, notably in Ontario.
Interprovincial migration is a driver of growth in several census metropolitan areas in Ontario and British Columbia
Although interprovincial migration did not contribute significantly to population growth in most CMAs in 2016/2017, it was a source of growth in several CMAs in Ontario and British Columbia. The Kelowna CMA (+1.0%) had the highest interprovincial migration rate in Canada, followed by Victoria (+0.7%). In Ontario, 9 of 15 CMAs posted positive interprovincial migration rates ranging from 0.1% to 0.6%.
Conversely, negative net interprovincial migration in the St. John's, Winnipeg, Regina and Saskatoon CMAs (-0.6% for each) was proportionally the highest in Canada. In addition, interprovincial migration rates in the Calgary (-0.3%) and Edmonton (-0.2%) CMAs were negative for the second consecutive year, following five years of gains.
Largest census metropolitan areas losing some population to neighbouring areas
In 2016/2017, Canada's three largest CMAs continued to post sustained population growth. However, these CMAs also recorded losses due to migration within their own province: Toronto (-36,755), Montréal (-10,325) and Vancouver (-9,926). This migration was mainly to the areas neighbouring these CMAs. The Toronto CMA saw large migration losses that benefitted the neighbouring CMAs of Oshawa, Hamilton and Barrie.
Chart 2: Distribution of population by age group and census metropolitan area, Canada, July 1, 2017
On July 1, 2017, the median age for the population residing in a CMA was 39.4 years, compared with 44.3 years for the non-CMA population. The proportion of people aged 65 and older was lower in CMAs (15.5%) than in areas outside of the CMAs (20.1%).
The number of people aged 65 years and older exceeded the number of children aged 0 to 14 years in Canada in 2014/2015. By July 1, 2017, just over 40% of CMAs had more children than seniors.
Trois-Rivières was the CMA with the highest median age (46.3 years) and the highest proportion of seniors aged 65 and older (22.9%). Conversely, the Saskatoon CMA had the lowest median age (34.9 years), while the Calgary CMA had the lowest proportion of seniors aged 65 and older (11.1%). The Regina CMA had the highest proportion of children aged 0 to 14 years (18.1%).
Population also aging in census metropolitan areas
Although the CMA population is generally younger, it is also aging. From July 1, 2007 to July 1, 2017, the proportion of people aged 65 and older in CMAs rose 2.9 percentage points to 15.5%. During the same period, this proportion increased 4.8 percentage points in areas outside of the CMAs, to 20.1% in 2017.
The median age of the CMA population also increased over the past 10 years, from 38.2 years in 2007 to 39.4 years in 2017 (+1.2 years). In comparison, the increase in median age outside of the CMAs was more than twice as large, with the median age rising 2.7 years to 44.3 years in 2017.
Faster population aging in areas outside of the CMAs is often correlated with the migration of young adults out of these areas. Generally speaking, more young adults leave areas outside of the CMAs to live in CMAs than the opposite. Pursuing postsecondary education and joining the labour market are the main reasons for these movements.
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/180213/dq180213a-eng.pdf
INFRASTRUCTURE
The Globe and Mail. 13 Feb 2018. Ottawa delays Aecon deal with national security review. Cabinet issues special order to scrutinize takeover by Chinese state-owned firm
ROBERT FIFE
STEVEN CHASE
The cabinet order does not mean that a negative finding has been made, but rather that issues have been raised that require closer scrutiny.
OLIVER BORGERS, LAWYER; WITH MCCARTHY TÉTRAULT, LLP, EXPERT FOREIGN INVESTMENT LAW
The Trudeau cabinet has issued a special order to prolong Ottawa’s scrutiny of a $1.5-billion takeover of Canadian infrastructure giant Aecon Group Inc. by a Chinese state-owned firm, invoking a section of law used when the federal government believes an investment “could be injurious to national security.”
The Aecon deal has been under review since last fall by Ottawa over whether it constitutes a “net benefit” for Canada. The would-be buyer, China Communications Construction Co. Ltd. (CCCC), is 63 per cent owned by the Chinese government.
Toronto-based Aecon disclosed Ottawa’s extended investigation Monday when it announced it was notified by Innovation Science and Economic Development Minister Navdeep Bains’s department that cabinet “has, under section 25.3 of the Investment Canada Act, ordered a continuation of the national security review of the proposed acquisition of Aecon.”
Several of Aecon’s largest competitors have asked Ottawa to block the takeover on the grounds that CCCC – one of the world’s largest infrastructure companies – has a poor track record when it comes to safety and corruption, and that a state-controlled Chinese entity is not suited to work on projects with security concerns, such as the refurbishment of nuclear power stations and building military facilities. All foreign investments are subject to some degree of national security screening, but the federal cabinet only infrequently issues an order of the kind it has made on Aecon. In the 2016-2017 year, for example, Ottawa conducted five national security reviews under Section 25 (3) of the Investment Canada Act.
It’s not clear precisely how many days Ottawa has been scrutinizing this deal, but as of Monday, 109 days had elapsed since the Aecon transaction was announced last October.
Oliver Borgers, a lawyer with McCarthy Tétrault LLP in Toronto who is an expert on foreign investment law, said this cabinet order buys the government more time.
“This signals that Minister Bains is of the view that the transaction could be injurious to national security,” Mr. Borgers said. “The cabinet order does not mean that a negative finding has been made, but rather that issues have been raised that require closer scrutiny.”
Mr. Bains’s office issued a statement Monday saying the Trudeau government took this additional step after advice from national security agencies.
“We follow the advice of those who actually have the information and intelligence necessary to make these determinations: our national-security agencies,” press secretary Karl Sasseville said. “We will continue to do our diligence to review the potential nationalsecurity implications, as we have been doing since Day 1. We never have and we never will compromise on national security.”
An extended review for the purposes of national security is conducted with input from the Department of Public Safety and Canada’s security and intelligence services. Factors considered include the potential impact of the investment on the security of Canada’s critical infrastructure, the potential for injury to Canada’s defence capabilities, the potential for transfer of technology with military application and the potential to enable foreign surveillance or espionage.
Data from the past five years show transactions subject to a national security review under Section 25 (3) of the Investment Canada Act have only been approved afterward when Ottawa imposed conditions on the deals.
It is not known how long this national security review will take, but the Chinese state-owned firm’s takeover faces opposition from Canada’s construction industry and from the federal Conservative Party.
The deal is opposed by the Canadian Construction Association, which counts 20,000 member firms and has concerns that Aecon could undercut rivals by having access to Chinese government subsidies. The Conservative Party has raised worries about CCCC’s close ties to the Communist Party and allegations of corruption and bribery on infrastructure in the developing world.
Aecon, led by chief executive officer John Beck, sought last Friday to answer concerns that have been raised about its involvement in critical infrastructure projects, such as nuclear facilities – contracts that would pass on to CCCC if the transaction is approved by Ottawa.
“Aecon does not own any intellectual property related to nuclear energy; nor does it possess any other sensitive proprietary technology,” the company said. “Aecon offers construction and refurbishment support to clients in the nuclear industry.”
The construction firm has also pushed back at the notion that an Aecon owned by China would receive subsidies from Beijing in the same way that China Communications Construction Co. does. Any subsidies CCCC receives “are related to specific research and development projects in China that are available to any company involved in those projects.” The subsidiary of CCCC that would own Aecon, the company said, “does not receive government subsidies for its international activities.”
The Globe and Mail. 13 Feb 2018. As demand increases for large-scale infrastructure projects, SNC-Lavalin is set to make big gains. Emerging from its legal woes, SNC poised for long-term gains. Firm is set to benefit from ambitious infrastructure plans at home and abroad.
DAVID BERMAN
SNC-Lavalin Group Inc. has been stuck in a volatile trading range for the past decade, but the combination of big infrastructure spending and a proven ability to win major contracts should push the stock to new heights.
Just last week, investors got a good look at what the engineering and construction company can achieve: It was tapped to build and equip Montreal’s electric-powered light-rail transit (LRT), a fully automated 67-kilometre network supported by a mammoth $6.3-billion budget.
Benoit Poirier, an analyst at Desjardins Securities, is assuming that SNC will get a 25-per-cent share of the contract (other firms are also involved), driving $1.6-billion in revenue over three years. With a profit margin of 5 per cent, the company should be able to add 36 cents a share to its net earnings over this period.
What’s more important, though, is that the contract bolsters the argument in favour of buying this stock for the long term: The company is clearly emerging from its recent legal headaches and is establishing itself as a smart bet on global infrastructure spending.
In the United States, the Trump administration is pushing ahead with its plan to improve crumbling roads, bridges and terminals with a plan to encourage US$1.5-trillion in spending over 10 years. In Canada, the federal government has announced nearly $12-billion worth of infrastructure improvements over the past few years, with a second phase of spending worth $33-billion in the works.
SNC is well-positioned to benefit from these ambitious plans, which will take years to unfold. The company operates in 100 countries. Although about 40 per cent of its $8.6-billion revenue in 2016 flowed from projects in Canada, big chunks also came from Australia, the United States and the Middle East.
Its experience is also deep. It designs and builds chemical plants, transmission systems, water treatment plants, bridges and highways – the type of infrastructure that countries, and investors, have been clamouring for.
The company’s experience with LRTs is particularly deep. In 2015, a consortium that included SNC won a contract to build Toronto’s 19-km Eglinton Crosstown LRT. SNC also won a contract in 2005 to build Vancouver’s 19.5-km Canada Line – completed on budget and ahead of schedule.
“We see the potential for SNC to be viewed as an infrastructure asset play, and for that matter, to appeal to more traditional infrastructure-focused investors,” said Derek Spronck, an analyst at RBC Dominion Securities, in a note published after the release of SNC’s fiscal third-quarter financial results in November.
But SNC’s stock price, although well off its lows, is hardly reflecting this enthusiasm, which is why it is a compelling opportunity right now.
Its engineering and construction business is valued at just 7.7-times estimated 2018 profit, according to Frederic Bastien, an analyst at Raymond James.
That’s much cheaper than its peers. Among integrated engineering and construction firms, including AECOM and Fluor Corp., the average price-to-earnings ratio is 14.3. And among firms that specialize in either construction or engineering, average P/E ratios are above 16.
There are reasons why SNC stands out as a cheap stock. Its contract to lead construction on the new $4-billion Champlain Bridge into Montreal is facing cost overruns and potential late penalties (although management is upbeat that it can accelerate construction to meet its deadline at the end of this year).
More broadly, its reputation took a battering several years ago when the company became embroiled in an extensive bribery scandal that felled its chief executive in 2012. The scandal fed concerns among investors that the company would lose access to international and Canadian government contracts, and could even lead to the sale or breakup of SNC. The shares fell more than 40 per cent between 2011 and 2012.
Although its reputation has largely recovered, and SNC continues to win government contracts, the stock has been struggling to rise above $60. It closed Monday at $53.51 in Toronto, up 1.3 per cent. Perhaps that’s one step along the way toward a long-awaited breakout rally.
ENERGY
The Globe and Mail. REUTERS. 13 Feb 2018. OPEC forecasts higher oil demand in 2018. The cartel said world demand would rise by 1.59 million barrels a day this year
ALEX LAWLER, LONDON
Recently, healthy and steady economic development in major global oil demand centres was the key driver behind strong oil demand growth.
OPEC REPORT
OPEC said on Monday that world oil demand would grow faster than expected in 2018 because of a healthy world economy, adding a tailwind to the producer group’s effort to remove a supply glut by cutting output.
But the global market will return to balance only toward the end of 2018, no earlier than previously thought, as higher prices encourage the United States and other non-member producers to pump more, OPEC said in a monthly report.
The Organization of the Petroleum Exporting Countries said world oil demand would rise by 1.59 million barrels a day (b/d) this year, an increase of 60,000 b/d from the previous forecast.
“Recently, healthy and steady economic development in major global oil demand centres was the key driver behind strong oil demand growth,” Vienna-based OPEC said in the report.
“This close linkage between economic growth and oil demand is foreseen to continue, at least for the short term.”
Oil prices held on to earlier gains after the release of the report, trading just below US$64 a barrel. Prices topped US$70 this year for the first time since late 2014, supported by the OPEC-led cut and robust demand.
Balancing the higher demand forecast, OPEC said the United States and other outside producers would boost supply by 1.4 million b/d this year, up 250,000 b/d from last month and the third consecutive rise from 870,000 b/d in November.
“The steady oil price recovery since summer 2017 and renewed interest in growth opportunities have led to oil majors catching up in terms of exploration activity this year, both in the shale industry and offshore deep water,” OPEC said, referring to the U.S. outlook.
“The market is only expected to return to balance towards the end of this year.”
OPEC’s assessment of when the market would rebalance is no earlier than its previous projection, despite the outlook for higher demand, falling inventories and strong compliance with the supply-cutting deal.
OPEC’s stated goal, through a deal starting a year ago to cut output with Russia and other outside producers, is to reduce oil inventories in developed economies to the five-year average. They have extended the pact until the end of 2018.
In a further sign of progress, OPEC said inventories in those economies declined by 22.9 million barrels in December to 2.888 billion barrels, 109 million above the five-year average.
OPEC compliance remains strong. In January, OPEC output fell by 8,000 b/d to 32.302 million b/d, the report said. Adherence by the members with output targets rose to 137 per cent, according to a Reuters calculation, up from December.
The report gave contrasting figures on production in Venezuela, where output has been dropping owing to an economic crisis.
Venezuela told OPEC its production recovered in January to 1.769 million b/d from December’s multidecade low, while figures from secondary sources that OPEC uses to monitor its output showed a decline to 1.60 million b/d, a new low.
OPEC uses an average of figures from six secondary sources to monitor its output rather than countries’ own, due to old disputes about real production rates.
With outside producers expected to increase supply this year by more than the upward revision to demand, OPEC in the report cut its estimate of the global requirement for its crude in 2018 by 230,000 b/d to 32.86 million b/d.
Should OPEC keep pumping at January’s level and other things remain equal, the market could move into a deficit of about 560,000 b/d, suggesting inventories will be drawn down further.
Last month’s report pointed to a larger deficit of about 670,000 b/d.
REUTERS. FEBRUARY 12, 2018. Oil hits two-month low as outlook for global balance dims
Amanda Cooper
LONDON (Reuters) - Oil fell to its lowest in two months on Tuesday, giving up early gains after a forecasting agency estimated world crude supply could overtake demand this year, potentially undermining producer efforts to curb supply.
The Paris-based International Energy Agency raised its forecast for oil demand growth in 2018 to 1.4 million barrels per day, from a previous projection of 1.3 million bpd.
However, rapidly rising output, particularly in the United States, could well outweigh any pick-up in demand and begin to push up global oil inventories, which are now within sight of their five-year average.
“Today, having cut costs dramatically, U.S. producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth,” the IEA said.
Brent crude futures LCOc1 fell 72 cents to $61.87 a barrel by 1448 GMT, while U.S. West Texas Intermediate crude futures CLc1 dropped 78 cents to $58.51.
“Overall, the IEA confirms its bearish view on global supply and demand, expecting no significant global stock draws in 2018,” Petromatrix strategist Olivier Jakob said.
“OPEC has a more bullish view but has been forced to reduce its call-on-OPEC estimate over the last few months and it has the risk of showing further reductions since its forward outlook for U.S. crude seems to be unrealistically low.”
The Organization of the Petroleum Exporting Countries said on Monday it expected world oil demand to climb by 1.59 million bpd this year, an increase of 60,000 bpd from the previous forecast, reaching 98.6 million bpd.
European equity markets were broadly steady, as gains in travel and leisure stocks offset losses in telecoms. Last week’s volatile trading had seen major indexes record some of their biggest one-day falls. [MKTS/GLOB]
The private American Petroleum Institute is due to publish crude inventory estimates on Tuesday, while the U.S. government’s Energy Information Administration releases fuel storage and crude production data on Wednesday.
“The much-watched U.S. inventory levels are set to increase seasonally over the coming weeks as refineries go into maintenance,” Julius Baer’s head of macro and commodity research, Norbert Ruecker, said.
“This should challenge the still-prevalent market tightening narrative at least temporarily. We see more downside for oil prices and stick to our short position.”
In an effort to tighten markets and prop up prices, OPEC and other producers including Russia have been withholding supplies since 2017. The cuts are scheduled to last through 2018.
Additional reporting by Henning Gloystein in Singapore; Editing by Dale Hudson and Jane Merriman
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