CANADA ECONOMICS
INFRASTRUCTURE - CIB
The Globe and Mail. 8 May 2018. OPINION. Investing in Trans Mountain pipeline project is the perfect job for Canada Infrastructure Bank
BENJAMIN DACHIS, Associate director of research at the C.D. Howe Institute
Tasking the bank with the project can help solve another problem: The appointment of leadership at the bank has been painfully slow.
We all know the Trans Mountain saga by now. Kinder Morgan wants certainty by May 31 on whether it can proceed with its proposed pipeline expansion from Alberta to the B.C. coast. If not, it threatens to walk away, stranding Alberta’s oil. The federal government has committed to making the project happen, and has just the shiny new tool to help: the Canada Infrastructure Bank.
Ottawa, which approved construction, said it will use “all tools” available to get the pipeline built. The Alberta government has even mused about buying the project from Kinder Morgan. Both governments want to see it completed, for good reason. A new pipeline to tidewater will increase the price Canadian oil fetches because of the Alberta supply glut, and a new pipeline means a stronger Canadian economy and higher government revenues.
What’s the case for the government stepping in? Kinder Morgan doesn’t care about the revenues governments would forego and the jobs that would be lost if the pipeline stalls. It simply wants to make money on its investment. With costs rising because of delays caused by the B.C. government, Kinder Morgan’s prospect of making money is looking dicey. That creates a disconnect between the private incentive of the company and what’s best for society.
Governments step in to deal with costs to society, such as a tax on pollution, that businesses wouldn’t otherwise pay for. Pipeline-safety regulations prevent spills. These steps make society better off by adding costs onto businesses.
Governments can also make society better off by increasing the social benefits that a business wouldn’t see in their bottom line. That’s why the federal government should give some kind of support for Kinder Morgan. Ottawa is best placed to reduce the financial risk that Kinder Morgan faces because of resistance to the project from British Columbia. The question is, how?
Governments should not be in the pipeline business. Adding political involvement to daily operating and building decisions will bog down the project. Nor should government support be unlimited. If Kinder Morgan demands too much, then Ottawa should walk away.
So, how will we know if the government can get a good deal?
Enter the Canada Infrastructure Bank.
Established in June, 2017, the Canada Infrastructure Bank is a “Crown corporation that uses federal support to attract privatesector and institutional investment to new revenue-generating infrastructure projects in, or partly within, Canada that are in the public interest.”
In the public interest? Check. Ottawa’s approval of the bank made that clear. Revenue-generating project? Check. The pipeline project will be self-financing, not requiring any continuing long-term government support once built.
As economist and public-policy researcher Trevor Tombe has argued, the best option would be a short-term loan during construction, not an equity investment; a loan that would need to be repaid at the end of construction would offer support during the most politically risky period. After that, the bank can cash out. The bank has the legislative power to offer Kinder Morgan the kind of support that makes the most economic sense. The bank, instead of politicians, can negotiate with Kinder Morgan to make sure taxpayers get a good deal.
Tasking the bank with the project can help solve another problem: The appointment of leadership at the bank has been painfully slow. Nearly a year after the legislation establishing the bank passed, there’s still no chief executive in place. Requiring the Canada Infrastructure Bank to structure an agreement with Kinder Morgan will light a fire underneath the bank’s board and the government to get on with setting it up.
The dilemma Kinder Morgan is facing is an example of why the Canada Infrastructure Bank was a good idea: a socially worthwhile infrastructure project bogged down by risks that only a government can step in to solve. The government can kill two birds with one stone by bolstering the bank quickly to support the construction of the Trans Mountain pipeline.
INTERNATIONAL TRADE
US. CHINA. WTO. REUTERS. MAY 8, 2018. U.S. says something 'terribly wrong' at WTO, attacks China
Tom Miles
GENEVA (Reuters) - The new U.S. ambassador to the World Trade Organization told the WTO’s membership on Tuesday that something had gone “terribly wrong” with judges at the world body and that China’s arguments showed Beijing was living in a fantasy.
Addressing the WTO’s General Council for the first time, Dennis Shea said the WTO’s rules had substantial value and the rules had “generally contributed” to global economic stability.
But he said there was a “steadily worsening rupture of trust” by the Appellate Body — the judges who form what is effectively the supreme court of world trade, and whose appointments the United States has been blocking.
“Something has gone terribly wrong in this system when those charged with adjudicating the rules are so consistently disregarding those very rules,” Shea said, according to a copy of his remarks provided to Reuters.
The judges had interpreted the WTO agreements to reach judgments that the WTO’s member countries never agreed to and had expanded its own capacity to write new rules, he said.
As an example of judicial rule-breaking, he cited delays in legal rulings, which are supposed to come within 90 days. They are routinely late — the result, many experts say, of ever-more complicated disputes piling up in a congested system.
“Our goal is to ensure that any system of dispute settlement can sustain the support of all members,” Shea said. “We do not see how perpetuating the existing dysfunctions through a complacent approach to the filling of Appellate Body vacancies can advance that objective.”
China had put the Appellate Body situation on the agenda of the meeting, as well as U.S. steel tariffs and President Donald Trump’s threat to penalize China for alleged theft of U.S. intellectual property.
China denies U.S. accusations that it trades unfairly by subsidizing steel production and coercing foreign firms to transfer technology to Chinese competitors. It has accused Trump of endangering the WTO system by acting recklessly and unilaterally.
U.S.-China trade talks will resume next week after failing to reach agreement last week, the White House said on Monday.
Shea said he was “perplexed” by China’s assertion that it was a victim.
“Mr. Chairman, we have now entered the realm of Alice in Wonderland. White is black. Up is down,” he said.
“It is amazing to watch a country that is the world’s most protectionist, mercantilist economy position itself as the self-proclaimed defender of free trade and the global trading system. The WTO must avoid falling down this rabbit hole into a fantasy world, lest it lose all credibility.”
The WTO must not shield countries that undermined the global trading system, he said.
“If the WTO wishes to remain relevant, it must – with urgency - confront the havoc created by China’s state capitalism.”
Reporting by Tom Miles; editing by Stephanie Nebehay, Larry King
US. CHINA. REUTERS. MAY 8, 2018. Exclusive: China ramps up checks on U.S. pork imports in potentially costly slowdown
Dominique Patton
BEIJING (Reuters) - China has ramped up inspections of pork shipped from the United States, importers and industry sources said, the latest American product to be hit by a potentially costly slowdown at Chinese ports in the past couple of weeks.
Some trade experts said they believe Beijing is sending a defiant warning to Washington in response to sweeping U.S. trade demands made on China last week.
The stepped-up checks have even hit China’s WH Group Ltd (0288.HK), the world’s largest pork company and owner of Smithfield Foods in the U.S., and come amid increasing scrutiny of other U.S. farm goods, including fruit and logs.
Ports are opening and inspecting every cargo that arrives, said Luis Chein, a director at WH Group, China’s top importer of U.S. pork.
That compares with inspections carried out only “randomly” in the past, he told Reuters, significantly lengthening the time product stays at the port.
China’s General Administration of Customs, which oversees food imports, did not respond to a fax seeking comment.
Increased checks on U.S. products are “not terribly surprising,” said Even Rogers Pay, an agriculture analyst at China Policy, a Beijing-based consultancy.
“In a situation where trade tensions are high, China will enforce every possible regulation on its books. It makes strategic sense to do so at this point,” she said.
Late on Monday, China’s customs agency announced it was stepping up quarantine checks on apples and logs from the United States after detecting pests in imports of the products at Chinese ports.
U.S. President Donald Trump has threatened tariffs on up to $150 billion of Chinese goods, largely because of U.S. allegations that Beijing misappropriates U.S. technology through joint-venture requirements, unfair licensing practices, outright theft and state-backed acquisitions of U.S. technology firms.
Beijing denies those accusations.
China’s top economic official, Liu He, will visit Washington next week to resume trade talks, the White House said on Monday, after a U.S. delegation led by Treasury Secretary Steven Mnuchin came away from a visit to Beijing last week with no agreement over a long list of U.S. trade demands.
FROM DAYS TO WEEKS
U.S. pork is now sitting at Chinese ports for up to two weeks, instead of a few days, industry sources told Reuters.
Most of the imported pork is frozen and not at risk of perishing. But the move comes on top of the additional 25 percent duties Beijing slapped on American pork and a slew of other goods last month, in retaliation for U.S. tariffs on steel and aluminium imports.
The United States is one of China’s top overseas pork suppliers, shipping $489 million worth of the meat last year.
A person working at a Shanghai-based meat trading firm said customs officials were also taking samples from about 20 percent of U.S. pork shipments since last month, up from about 5 percent previously.
He declined to be named because of the sensitive nature of the topic.
There had been no change for imports from other destinations the company buys from, including Canada and Europe, he added. Two German pork exporters said they were not aware of any changes to inspections.
Stepped up inspections and sampling were also cited in an April 30 report by the United States Department of Agriculture attache in Beijing, which said the new measures had started on April 23 but gave no further details.
The tariffs have already cut off demand for muscle cuts, or higher value pork meat, and pressured the price of so-called “variety” meat, such as offal and feet, the biggest portion of U.S. pork exports by volume.
In addition, China’s domestic hog prices have plunged in the first quarter, and are still hovering around eight-year lows of about 10 yuan ($1.57) per kg. That has led WH Group to sharply reduce its imports anyway this year, added Chein.
WH Group Ltd
8.01
0288.HKHONG KONG STOCK
+0.04(+0.50%)
0288.HK
0288.HK
China’s total pork imports declined 10 percent to 595,611 tonnes in the first three months of the year, according to Chinese customs.
($1 = 6.3670 Chinese yuan renminbi)
US. EU. REUTERS. MAY 8, 2018. European steelmakers see recovery at risk from U.S. tariffs
Maytaal Angel
LONDON (Reuters) - A revival in European steel is at risk from U.S. President Donald Trump’s move to impose tariffs on imports, Eurofer said as it raised its 2018 forecast for apparent steel consumption.
The consumption figure, which excludes the impact of inventory changes, is set to grow by 2.3 percent, above a previous forecast of 1.9 percent, the European steel association said on Tuesday.
“The latest data shows that the European steel industry has finally struggled its way back towards a firmer footing”, Axel Eggert, director general of Eurofer, said, adding that this was being put at risk by a 25 percent U.S. tariff on steel imports.
Trump imposed the tariff on steel imports and a 10 percent tariff on aluminum on March 23, but granted temporary exemptions to Canada, Mexico, Brazil, the European Union, Australia and Argentina.
He has since postponed tariffs on Canada, the EU and Mexico until June 1, but a source familiar with the decision said there would be no further extensions beyond that date.
The EU has said it will set duties on 2.8 billion euros ($3.36 billion) of U.S. exports, including peanut butter and denim jeans, if its metals exports to the United States, worth 6.4 billion euros, are subject to tariffs.
It has also launched an investigation into whether to impose safeguard measures that would limit EU steel imports, which it fears might surge as steel previously headed for the U.S. gets diverted.
Eurofer said preliminary data suggests EU steel imports grew 8 percent in the first quarter, after falling 1.8 percent last year thanks to EU trade defense measures to counter dumping and unfair subsidies.
Steel imports from India rose 96 in the first quarter while those from Turkey grew by 64 percent, Eurofer said, countering a drop in imports from China, Russia, Ukraine and Brazil, whose steel is largely subject to EU anti-dumping duties.
EU apparent steel consumption grew 1.6 percent in the first quarter, Eurofer said. The group sees apparent steel consumption growth of 1.4 percent next year versus 2.3 percent this year.
Reporting by Maytaal Angel; Editing by Alexander Smith
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