CANADA ECONOMICS

FOREIGN AFFAIRS

Global Affairs Canada. June 19, 2018. Foreign Affairs Minister to Speak at Montreal Council on Foreign Relations

The Honourable Chrystia Freeland, Minister of Foreign Affairs, will deliver remarks and participate in an armchair discussion at the Montreal Council on Foreign Relations on June 20, 2018.

DOCUMENT: https://www.corim.qc.ca/en/event/817/2018-06-20-chrystia-freeland

NAFTA

The Globe and Mail. 19 Jun 2018. OPINION. How Canada deals with the U.S., in seven simple steps
ED WHITCOMB, Former career foreign service officer and the author of "Rivals for Power: Ottawa and the Provinces"

Of course, when the United States slaps tariffs on Canadian exports, the only response is to slap equal tariffs on theirs.

The elephant has twitched; the mouse is in danger of being squashed; and we best figure out quickly how to avoid serious damage.

We have not, in fact, been handling the United States as well as we should have. So let’s stop congratulating ourselves on our clever negotiating and political skills, reexamine some tactics, admit some errors, make some adjustments, prepare for major problems and make the best of it.

Canadians are right to rally behind their government in its relations with Washington. But that does not mean slavish endorsement of the government’s strategy and tactics.

Of course, when the United States slaps tariffs on Canadian exports, the only response is to slap equal tariffs on theirs. If they add more tariffs, we do the same. That is not up for debate with the United States or within Canada.

But some of our arguments and statements have been pointless, if not counterproductive, and it’s time to drop them.

First, do not tell Americans what is good for them, how many jobs depend on this or that export and how many states do a lot of business with Canada. Americans are among the shrewdest traders in history and they do not need foreigners telling them how their economy works or what is good for them.

Second, stop saying, “No one wins a trade war.” The fact that both sides endure costs does not mean no one wins:

The Allies won the Second

World War at a cost of millions of casualties. If there is a trade war, the United States will win, and any American who doesn’t understand that there will be costs won’t listen to anyone who says there will be.

Third, by all means say that Canada will stand up for its interests, but never say that it won’t be pushed around. That implies there is a bully, and bullies don’t like to be called out.

Fourth, stop saying we will “continue” to be polite, when our Prime Minister has just, in effect, called the U.S. President a bully, while our constant lectures on the advantages of the North American free-trade agreement are a trifle condescending.

Fifth, make the best case for Canada’s interests and accept that Americans are clever enough to make the best case for theirs. Stop imagining that all our trade depends on NAFTA, or that all the additional trade created by NAFTA will disappear if the treaty does not survive.

Sixth, start taking the hard decisions we have been able to avoid because of our easy access to the most dynamic economy in the world. For example, reducing our internal barriers to trade, our excessive regulations, our high taxes and big deficits. Europeans and others do many things better than Canadians – it’s time to stop bragging and start copying.

Finally, instead of repeating that the United States helped establish multilateral institutions before Donald Trump was born, recognize that a majority of Americans are probably protectionists now, a majority are Republicans, Mr. Trump won almost 50 per cent of the vote and his core base is larger than that of almost any government in Canada.

The problem is not the guy in the White House and a few misled followers, but the fact that America always puts itself first – as it should, as every other nation should and as we should. The United States was isolationist for centuries before Japan’s misguided attack on Pearl Harbour forced it into the Second World War. It then found multilateralism advantageous as long as it could dominate multilateral institutions. Mr. Trump represents the large portion of Americans who realize that those days are gone. They are adjusting to the loss of American power by weakening ties with organizations such as the UN and the WTO, opting out of the Trans-Pacific Partnership and undermining relationships such as NAFTA. Canada has to adjust to these new realities. The United States is moving back to its traditional preference for bilateralism and isolation and no amount of lecturing on the advantages of multilateralism will change the minds of those who think that way. We must do our best to keep the United States in the multilateral world – including with NAFTA – however, we have survived in a world of American bilateralism before, and we can do it again.

So let’s get the analysis, strategy and tactics right, and see how it all works out.

The Globe and Mail. 19 Jun 2018. Expect auto tariffs soon, Ambrose warns. Ambrose: Ex-politician suggests tariffs could be avoided if NAFTA deal is reached soon
JEFFREY JONES

Canada … we are at the table on an agreement on autos. The issue is getting Mexico there.

RONA AMBROSE, MEMBER OF OTTAWA’S NAFTA ADVISORY COUNCIL, FORMER HARPER-ERA CABINET MEMBER

U.S. President Donald Trump will almost certainly follow through on threats to impose tariffs on auto imports, heaping more pressure on Canada and Mexico to make concessions as North American freetrade agreement talks enter the crucial next phase, says former cabinet minister Rona Ambrose, a member of Ottawa’s NAFTA advisory council.

Mr. Trump has directed the U.S. Department of Commerce to study imports of cars, trucks and auto parts on national security grounds, in the same process that led to tariffs on foreign aluminum and steel, noted Ms. Ambrose, who was interim leader of the federal Conservative Party before she quit politics last year. The move sparked retaliatory measures from Ottawa and strained relations between Prime Minister Justin Trudeau and the U.S. President.

Toronto-Dominion Bank’s investment arm, TD Securities Inc., predicts 25-per-cent tariffs on the auto sector would have dire consequences for Canada’s economy. In a report on Monday, the bank said that would hit as much as $74-billion worth of exports and cut growth by one half of 1 per cent in 2019, as the economy stagnates for two consecutive quarters.

Growth in Ontario would fall as much as 2 percentage points, the bank said.

“What we now know about President Trump is that when he makes a threat on tariffs, he follows through,” Ms. Ambrose said in an interview. “He’s done that on every instance so far, whether it’s aerospace, softwood lumber or, more recently, aluminum and steel.”

The national security investigation, known as Section 232, will be completed shortly, likely leading to auto tariffs on Canada and Mexico, she said. That could mean the loss of one in five jobs in Ontario, Canada’s manufacturing heartland, erasing the employment gains of the past two years, TD said.

“It may not be 25 per cent, but I would predict that he will follow through on his threat, so this puts a whole new pressure on our side in particular, and the Mexicans, to come to some sort of an agreement that’s amenable to the Americans,” she said.

Ms. Ambrose suggested tariffs could be avoided if a NAFTA deal is reached in the next few weeks, although few experts expect that, given the tensions sparked by Mr. Trump’s protectionist “America first” stand.

In an interview with Reuters, Innovation Minister Navdeep Bains suggested the government could step in with financial aid for the auto industry. “We’re examining all options … our view is that if any such action is taken, we’re going to support our workers,” he said last week.

Ms. Ambrose spoke to The Globe and Mail ahead of an announcement on Tuesday that she will become an adviser to TD Securities on a range of issues, using her experience in politics, trade, economics, the environment and gender diversity. The new non-staff position follows her appointment last year to the NAFTA council, which includes business, political and diplomatic leaders.

The Calgary-based Ms. Ambrose held nine ministerial posts in the government of prime minister Stephen Harper, and was interim opposition leader from 2015 until she retired from politics in 2017.

“I’ll be working with their corporate clients, whether they are Canadian clients or global clients, on issues where there is an intersection between public policy and politics, which is a space that I’m very comfortable with,” she said.

A wild card in the NAFTA talks is the Mexican presidential election on July 1. The Trump administration now believes it has a better chance of achieving concessions on wage increases from Mexico should front-runner Andres Manuel Lopez Obrador defeat President Enrique Pena Nieto, Ms. Ambrose said. Such a move would make U.S. labour more competitive.

“Canada … we are at the table on an agreement on autos. The issue is getting Mexico there. So once the election in Mexico is over, things might actually look more positive to reach some kind of a wage average that would be more amenable to the Trump administration,” she said.

“With the auto tariffs hanging over Mexico and Canada, there is even more pressure on both to come to some kind of agreement with the United States on autos.”

CANADA - CHINA

The Globe and Mail. 19 Jun 2018. Magna accelerates into Chinese auto market. Parts giant to develop, build electric vehicles in bid to cash in on growing demand. Magna: Company’s efforts in China date back to 1990s
VICTORIA GIBSON

While electric vehicles are a booming market overseas, they’ve yet to catch a similar hold on Canada and the United States.

Magna International Inc. is set to build and develop cars in China to cash in on a growing market for electric vehicles.

At a ceremony Monday in Nanjing, the Aurora, Ont.-based auto parts giant announced plans for a pair of joint ventures with Beijing Electric Vehicle Co. Ltd – a subsidiary of Beijing Automotive Industry Holding Co. (BAIC Group) – that will see the groups take over an existing BAIC facility in Zhenjiang with the capacity to build up to 180,000 vehicles a year.

With the first cars set to roll off the assembly line in 2020, the move is a big one for Magna. The company has engineered and assembled vehicles in Graz, Austria, for 20 years at the Steyr plant – Magna’s only complete vehicle manufacturing operation.

Magna chief executive Don Walker has recently expressed concern about the rising costs of business in Canada, and Ontario in particular. Magna, with about 22,000 employees at 51 factories in Ontario, is one of the province’s largest employers.

In a news release Monday, Mr. Walker touted the company’s “ability to produce vehicles with conventional, hybrid and electric powertrains,” noting the “tremendous opportunity” for the Chinese market.

China, which has struggled with smothering air pollution, has set a goal of having 20 per cent of sales by 2025 consist of “new energy vehicles” – meaning electric or plug-in hybrids. Sales in this category doubled last year to more than 520,000, and China has been identified as a leader alongside California and Norway. Companies such as Volkswagen AG and General Motors Corp. see China as a key market, due to both demand and the country’s stringent regulations.

“By 2020, analysts predict that the number of all-electric cars on China’s roads could reach around five million, due in part to subsidies and quotas by the Chinese government,” Magna spokesperson Tracy Fuerst said in an e-mail.

“The joint ventures will give Magna access to the Chinese market and Chinese customers.”

Monday’s announcement comes two months after Magna and BAIC Group announced their intention to jointly develop “next generation” smart electric vehicle design for the Chinese market. That design “architecture” is now expected to be transferred to the engineering joint venture. (The other venture will focus on the manufacturing side.)

While electric vehicles are a booming market overseas, they’ve yet to catch a similar hold on Canada and the United States.

Dennis DesRosiers, president of DesRosiers Automotive Consultants, believes it’s because consumers still have to make some compromises when they purchase electric vehicles – whether it’s the vehicle’s power, charging concerns, the style, colour or space available to them.

“Very few consumers like to compromise on their vehicles of choice, and pay more,” he said.

“The secret to more acceptance of electric vehicles in any market is science. The science of electric vehicles has to be further developed to get rid of the compromises consumers make buying them.”

In Canada, billions of dollars’ worth of charging infrastructure, substantial improvements to battery technologies and changes in consumers’ perception of electric vehicles have been identified as necessary before the electric vehicle market can take hold.

The needed science is expensive though, Mr. DesRosiers cautioned. “So you need a market in order to generate the revenue to afford the science. Being in a market that accepts them is a critical element to manufacturing.” The Chinese have already accepted the vehicles in their market, because they had to.

Magna’s efforts in China date back to the mid-1990s, when it began to build its presence in Asia. Magna currently list approximately 26,500 employees at 67 manufacturing locations and 20 product development, engineering and sales offices across the continent, with 22,600 of those employees in China. Magna is calling Monday’s announcement a “historic milestone.”

The Globe and Mail. 19 Jun 2018. Canada can’t win a trade war, but here’s how investors can profit
GORDON PAPE, Editor and publisher of the Internet Wealth Builder and Income Investor newsletters.

Let’s get one thing clear from the outset. We cannot win a trade war with the United States. We can impose all the retaliatory tariffs we like. We can boycott American products until our wallets scream. The U.S. won’t even notice.

Sure, a few companies may experience sales declines and some folks may be laid off. But in the grand scheme of the American economy, it will be about as much nuisance as a pesky fly.

In a report earlier this month, the C.D. Howe Institute looked at two scenarios. The first was potential impact of a 10-per-cent tariff imposed by the U.S. on all goods and services. The second projected the economic impact of Canadian retaliation, where Canada implements a similar 10per-cent tariff on U.S. goods and services in response.

In the first case, the likely effect would be a reduction in Canadian GDP of 0.9 per cent. That would be bad but not disastrous.

In the second scenario, which would see Canada hitting back with similar tariffs, the result is much worse. Our national GDP would fall by 2 per cent, according to the report. Since our GDP is currently growing at an annual rate of 1.3 per cent, according to Statistics Canada (first-quarter results), a hit like that would tip us into recession.

Essentially what these numbers are telling us is that Canada should sit quietly by and let Donald Trump and his protectionist followers do their worst. To retaliate would only harm us, not them.

However, political realities make that impossible. Imagine how opposition politicians and the Canadian public would react if Prime Minister Justin Trudeau adopted a say-nothing, do-nothing approach to American trade provocations. His Liberal Party would disappear from the landscape the next time voters go to the polls.

That leaves the Prime Minister in a political bind. He has to stand up to U.S. President Donald Trump for the sake of his own image, self-esteem and political survival. But doing so, even in a mild way (“We won’t be pushed around”), enrages the thinskinned President to the point that he threatens that Canadians will pay dearly for Mr. Trudeau’s comments.

Expect that to happen. Mr. Trump is a vindictive man when he feels his ego has been harmed. And he holds a grudge for a long time – he is still going after Hillary Clinton, for heaven’s sake.

So unless something unexpected happens, it appears we are faced with an escalating trade war we cannot win. If Mr. Trump follows through with his threat to slap tariffs on cars, it would really get ugly.

A reader wrote to ask what companies might be relatively immune from tariffs if things go from bad to worse. Here are three Canadian firms that might qualify, but let me preface this with a major caveat. If the trade war escalates to the point of recession, all companies will suffer, whether or not they are export-oriented. However, these may be less impacted than others.

CGI Group (GIB.A-T, GIB-N). Not even Mr. Trump is likely to figure out a way to put tariffs on knowledge, and that’s what Montreal-based CGI deals in. It is the fifth-largest independent information-technology and business consulting-services firm in the world. Its services include systems integration, IT outsourcing, data centres, cloud computing, internet security and more. The company employs about 73,000 professionals in offices and delivery centres across the Americas, Europe and the Asia-Pacific region. Annual revenues are $10.8billion.

Second-quarter 2018 results (to March 31) continued to be strong. Revenue came in at $2.95-billion, a year-over-year increase of 4.9 per cent on constant currency basis. Net earnings were flat with the year before at $274.4-million but were better on a per-share basis, coming in at 94 cents (fully diluted) compared to 90 cents last year. This was due to a drop of about 12.6 million shares, thanks to the company’s aggressive buyback program.

CGI’s backlog at the end of the quarter was just over $22-billion, which is well distributed internationally. In terms of client geography, 28 per cent of the business comes from the U.S., 16 per cent from Canada, 15 per cent from France, 12 per cent from Britain, 7 per cent each from Finland and Sweden, and 15 per cent from the rest of the world.

Tariffs are not a direct threat to this business but they could have an indirect impact if clients have to cut budgets because of lagging sales. As I mentioned, no one is safe if economic growth slows.

WSP Global (WSP-T). WSP is an international engineering and design firm that provides a wide range of services, from urban planning to environmental remediation. Based in Montreal, the company employs approximately 43,000 people, including engineers, technicians, scientists, architects, planners, surveyors and environmental specialists, as well as other design, program and construction-management professionals. It has 550 offices across 40 countries, on five continents.

Here again, we have a knowledge-based company with a strong international presence that is not involved in a tariff-vulnerable business (although many of its clients may be). The company is growing at a steady rate, with first-quarter net revenue of almost $1.5-billion, up from $1.3-billion the year before. Net earnings were $49.7-million (48 cents per share, fully diluted), compared to $47.6-million (47 cents per share) the year before. Backlog at the end of the quarter was $6.7-billion, up 12.3 per cent from the same period in 2017.

A look at the distribution of the backlog illustrates the geographic diversity of the company’s business. The Canadian total is only 15.3 per cent while the Americas account for 35 per cent. Europe, the Middle East, India and Africa (EMEIA) make up 31.6 per cent while Asia-Pacific (APAC) is just over 18 per cent.

Algonquin Power and Utilities (AQN-T). A Canadian-based company that has almost all of its assets in the U.S. seems relatively safe from Mr. Trump’s tariff threats. The company provides rate-regulated natural gas, water, and electricity generation, transmission and distribution utility services to over 750,000 customers in the United States. It focuses on clean energy through its portfolio of wind, solar and hydroelectric generating facilities, representing more than 1,600 MW of installed capacity.

This is a smaller company than CGI or WSP and does not have their global reach. But the nature of its business, with what amounts to a captive client base, puts it in a relatively secure position in a trade war. The main potential area of vulnerability is that tariffs will drive up the cost of the materials used to expand its business.

First-quarter results showed a 17-per-cent increase in revenue to US$494.8-million (the company reports in U.S. dollars). Adjusted net earnings were US$141-million (32 cents per share), compared to US$66.5-million (19 cents per share) the year before. The directors approved a 10-per-cent dividend increase, which shows a high degree of confidence in the company’s future.

Here are other sectors that have little or no tariff exposure, but that could incur other types of risk in a trade war.

BANKS

A sharp decline in business investment resulting from uncertainty over access to the U.S. market would hurt business. The CEO of Royal Bank has already voiced this concern. On another level, banks would face increased risks of mortgage default if unemployment rises because exporting companies scale back.

REITS

Real-estate investment trusts might appear at first glance to be sheltered from trade storms. But if those storms result in a recession, shops will shut down, offices close and manufacturers go out of business, leaving millions of square feet of vacant space.

UTILITIES

Most of their business is regulated and they have a stable clientele – we all need our electricity and natural gas even if the economy is in the dumps. However, these companies face potential tariff hits on the materials they import to build new facilities or maintain existing ones. In this case, higher costs would eventually be passed on to consumers.

About the only sector I can think of that bears little risk if the situation escalates is gold companies. No one is talking about tariffs on gold imports and the price of the metal is likely to rise if the economic situation worsens and investors seek safe havens.

But unless you’re in the gold business, a trade war will hurt almost every Canadian in some form or another. Based on Mr. Trump’s remarks, he’d be happy to see that happen. As far as he’s concerned, our Prime Minister said some disrespectful things about him, so he wants to punish us all as a result. He has the power to do just that.

US - CHINA

Globe and Mail. ASSOCIATED PRESS. 19 Jun 2018. Trump moves to slap tariffs on $200-billion in Chinese imports as trade tensions escalate
JEFF KAROUB
ZEKE MILLER

These tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced.

DONALD TRUMP U.S. PRESIDENT

U.S. President Donald Trump directed the U.S. Trade Representative to prepare new tariffs on US$200-billion in Chinese imports on Monday as the two countries moved closer to a potential trade war.

The tariffs, which Mr. Trump wants set at a 10-per-cent rate, would be the latest round of punitive measures in an escalating dispute over the large trade imbalance between the two countries. Mr. Trump recently ordered tariffs on US$50-billion in Chinese goods in retaliation for intellectual-property theft. The tariffs were quickly matched by China on U.S. exports.

“China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology,” Mr. Trump said in a statement Monday announcing the new action. “Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong.”

Mr. Trump added: “These tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced.”

Mr. Trump said that if China responds to this fresh round of tariffs, then he will move to counter “by pursuing additional tariffs on another $200-billion of goods.”

Mr. Trump’s comments came hours after the top U.S. diplomat accused China of engaging in “predatory economics 101” and an “unprecedented level of larceny” of intellectual property.

Secretary of State Mike Pompeo made the remarks at the Detroit Economic Club as global markets reacted to trade tensions between the United States and China. Both countries started putting trade tariffs in motion that are set to take effect July 6.

He said China’s recent claims of “openness and globalization” are “a joke.” He added that China is a “predatory economic government” that is “long overdue in being tackled,” matters that include IP theft and Chinese steel and aluminum flooding the U.S. market.

“Everyone knows … China is the main perpetrator,” he said. “It’s an unprecedented level of larceny.”

“Just ask yourself: Would China have allowed America to do to it what China has done to America?” he said later. “This is predatory economics 101.”

The Chinese embassy in Washington did not immediately respond to a request for comment.

Mr. Pompeo raised the trade issue directly with China last week, when he met in Beijing with President Xi Jinping and others.

“I reminded him that’s not fair competition,” Mr. Pompeo said.

Mr. Trump had announced a 25-per-cent tariff on up to US$50 billion in Chinese imports. China is retaliating by raising import duties on US$34-billion worth of American goods, including soybeans, electric cars and whisky. Mr. Trump also has slapped tariffs on steel and aluminum imports from Canada, Mexico and European allies.

Wall Street has viewed the escalating trade tensions with wariness, fearful they could strangle the economic growth achieved during Mr. Trump’s watch. Gary Cohn, Mr. Trump’s former top economic adviser, said last week that a “tariff battle” could result in price inflation and consumer debt – “historic ingredients for an economic slowdown.”

Mr. Pompeo on Monday described U.S. actions as “economic diplomacy,” which, when done right, strengthens national security and international alliances, he added.

“We use American power, economic might and influence as a tool of economic policy,” he said. “We do our best to call out unfair economic behaviours as well.”

In a statement, Mr. Trump says he has an “excellent relationship” with Mr. Xi, “but the United States will no longer be taken advantage of on trade by China and other countries in the world.”

The Globe and Mail. THE ASSOCIATED PRESS.JUNE 19, 2018. China blasts Trump’s new tariff threat, warns it will retaliate
JOE MCDONALD

BEIJING - China on Tuesday threatened “comprehensive measures” in response to U.S. President Donald Trump’s new tariff hike, raising the possibility Beijing might target operations of American companies.

Trump’s announcement fuelled fears that economic losses, limited so far to companies hit by U.S. or Chinese tariff hikes, might spread if the dispute chills global trade.

Global stocks fell after Trump’s announcement. China’s market benchmark dropped 3.8 per cent while Hong Kong’s lost 2.8 per cent. In Europe, Germany’s main index was off 1.3 per cent and France’s lost 1.1 per cent.

The Commerce Ministry criticized Trump’s order for new tariffs on $200-billion of Chinese goods as blackmail. In a forceful statement, it said Beijing was ready to “defend the interests of the Chinese people and enterprises.”

If the tariff hike goes ahead, “China will have to adopt comprehensive measures that combine quantity and quality,” the statement said.

It gave no details, but China’s lopsided trade balance with the United States means Beijing doesn’t import enough American goods to stick with its strategy of matching the scale of Trump’s tariff increases.

China responded to the U.S. announcement Friday of a 25 per cent tariff on $34-billion of Chinese goods by imposing an identical charge on the same amount of American goods. But China’s imports from the United States last year totalled $153.9-billion. That would leave about $120-billion available for a tariff hike, falling short of Trump’s $200-billion target.

The mention of “comprehensive measures” suggests Beijing might go beyond tariffs, said Jake Parker, vice-president for China operations of the U.S.-China Business Council. He asked whether that might include delaying or denying licenses required by U.S. companies.

“That seems to open up a new front,” Parker said.

China’s heavily regulated economy also gives officials the option of tying up companies with tax, anti-monopoly or other investigations.

“China could target U.S. firms through tax and regulatory policies,” Citigroup said in a report.

The dispute is part of broader U.S. complaints about global trading conditions that have prompted Trump to raise duties on steel, aluminum, washing machines or solar panels from Canada, Europe, Japan and South Korea.

Economists warn Washington might be undercutting its negotiating position by alienating potential allies.

Tariff hikes imposed so far by Trump affect a total of $109-billion of imports, according to Morgan Stanley. It said with retaliatory tariffs imposed by American trading partners added in, the total rises to $181-billion, or 1 per cent of global trade.

The risks of “a more meaningful impact on global trade and growth have increased,” Morgan Stanley economists said in a report.

The United States and China have the world’s biggest trading relationship but official ties are increasingly strained over complaints Beijing’s technology development tactics hurt American companies.

Beijing has offered to narrow its politically volatile trade surplus with the United States but has resisted changing development plans its leaders see as a path to prosperity and to restoring China’s rightful role as a global leader.

Trump’s tariffs target goods the White House says benefit from industrial policies that China’s trading partners say violate its market-opening pledges.

The Trump administration also has threatened a tariff hike on another $100-billion of imports in its parallel dispute over Beijing’s trade surplus. It has yet to say when that might take effect.

Europe, Japan and other trading partners raise similar complaints. But Trump has been unusually direct about threatening to disrupt such a large volume of Chinese exports.

“Beijing will not panic in response to Trump’s latest threat, but will be deeply concerned,” Eurasia Group said in a report.

It said the Chinese government is trying to find out whether Trump has the “political strength” to carry out his threats and is pressuring U.S. interests to force him to compromise.

REUTERS. JUNE 19, 2018. TSX slides as U.S.-China trade tensions escalate

(Reuters) - Canada’s main stock index slipped on Tuesday as a trade spat between the world’s two biggest economies, the United States and China, intensified.

FILE PHOTO - A TMX Group sign, the company that runs the Toronto Stock Exchange (TSX), is seen in Toronto, Ontario, Canada, June 23, 2014. REUTERS/Mark Blinch/File Photo
* At 9:33 a.m. ET (1333 GMT), the Toronto Stock Exchange’s S&P/TSX Composite index was down 99.28 points, or 0.61 percent, at 16,284.35.

• U.S. President Donald Trump threatened to slam a 10 percent tariff on $200 billion of Chinese goods and Beijing warned it would retaliate.
• The main index was also weighed down by the financials, materials and energy sectors.
• Eight of the index’s 11 major sectors were lower.
• The financials sector dipped 0.3 percent and the materials group shed 1.2 percent.
• The energy sector dropped 1.2 percent as oil prices were hit by flaring tensions over U.S.-China trade.
• The Canadian dollar weakened to a nearly one-year low against its U.S. counterpart as an escalating trade dispute between the United States and China pressured global stock and commodity markets.
• A working group will present recommendations on enhancements to the Canadian overnight risk-free rate by the end of the year, and the Bank of Canada will seek broader input on interest rate benchmark reform, a top official said on Monday.
• Copper prices hit a three-week low on Sino-U.S. trade worries. [MET/L]
• On the TSX, 37 issues were higher, while 199 issues declined for a 5.38-to-1 ratio to the downside, with 9.19 million shares traded.
• The top gainer on the TSX was Baytex Energy, which jumped 2.7 percent, while Raging River Exploration - up 2.1 percent - was the second biggest gainer on the TSX. The two companies announced a merger on Monday.
• The top decliner on the TSX was First Quantum Minerals, which fell 5.8 percent. The next biggest loser was Teck Resources Ltd with a 3.2 percent slide.
• The most heavily traded shares by volume were Baytex Energy Co, Bombardier and Arizona Mining.
• The TSX posted one new 52-week high and one new low.
• Across Canadian issues there were six new 52-week highs and six new lows, with a total volume of 15.58 million shares.

Reporting by Shreyashi Sanyal in Bengaluru

REUTERS. JUNE 18, 2018. China slams U.S. 'blackmailing' after Trump makes new trade threat
Michael Martina, Eric Beech

BEIJING/WASHINGTON (Reuters) - China accused the United States on Tuesday of “extreme pressure and blackmailing” and vowed to retaliate after U.S. President Donald Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods in an escalation of the trade conflict between the world’s two biggest economies.

Trump’s move on Monday, as Washington fights trade battles on several fronts, was unexpectedly swift and sharp, hitting stock China’s stock market hard as well as pushing Wall Street lower at the start of trade on Tuesday.

It was retaliation, Trump said, for China’s decision to raise tariffs on $50 billion in U.S. goods, which came after Trump announced similar tariffs on Chinese goods on Friday.

China’s commerce ministry said Beijing will fight back with “qualitative” and “quantitative” measures if the United States publishes an additional list of tariffs on Chinese goods.

“Such a practice of extreme pressure and blackmailing deviates from the consensus reached by both sides on multiple occasions,” the ministry said in a statement.

“The United States has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the U.S., but of the world.”

The comments sent global stock markets skidding and weakened both the dollar and the Chinese yuan on Tuesday. Shanghai stocks plunged to two-year lows. The Dow Jones Industrial Average shed 1.20 percent, with 29 out of 30 components in the index lower. The S&P 500 .SPX was down 0.73 percent.

Washington and Beijing appeared increasingly headed toward open trade conflict after several rounds of talks failed to resolve U.S. complaints over Chinese industrial policies, lack of market access in China and a $375 billion U.S. trade deficit.

“After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced,” Trump said in a statement on Monday.

U.S. business groups said members were bracing for a backlash from the Chinese government that would affect all American firms in China, not just in sectors facing tariffs.

Jacob Parker, vice president of China operations at the U.S.-China Business Council in Beijing, said China would undoubtedly “begin looking at other ways to enforce action against U.S companies that are operating in the market.”

Some companies have reported Beijing is meeting with Chinese businesses to discuss shifting contracts for U.S. goods and services to suppliers from Europe or Japan, or to local Chinese firms, Parker said.

U.S. Trade Representative Robert Lighthizer said his office was preparing the proposed tariffs and they would undergo a similar legal process as previous ones, which were subject to a public comment period, a public hearing and some revisions. He did not say when the new target list would be unveiled.

“As China hawks, like Lighthizer and (Peter) Navarro, appear to have gained power within the Trump administration lately, an all-out trade war now seems more inevitable,” said Yasunari Ueno, chief market analyst at Mizuho Securities in Japan.

TIT-FOR-TAT

On Friday, Trump said he was pushing ahead with a 25 percent tariff on $50 billion worth of Chinese products, prompting Beijing to respond in kind.

Some of those tariffs will be applied from July 6, while the White House is expected to announce restrictions on investments by Chinese companies in the United States by June 30.

An initial list had included articles like televisions that were later removed, with semiconductors being added.

“China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology. Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong,” Trump said.

Trump said if China increases its tariffs again in response to the latest U.S. move, “we will meet that action by pursuing additional tariffs on another $200 billion of goods.”

Trump said he has “an excellent relationship” with Chinese President Xi Jinping and they “will continue working together on many issues.”

But, he said, “the United States will no longer be taken advantage of on trade by China and other countries in the world.”

COOLING CHINESE ECONOMY

The intensifying trade dispute threatens to put more pressure on the already cooling Chinese economy, risking an end to a rare spell of synchronized global expansion and collateral damage for its export-reliant Asian neighbors.

China’s central bank unexpectedly injected 200 billion yuan ($31 billion) in medium-term funds into the banking system on Tuesday in a move analysts said reflected concerns about liquidity but also the potential economic drag from a full-blown trade war.

China imported $129.89 billion of U.S. goods last year, while the U.S. purchased $505.47 billion of Chinese products, according to U.S. data.

Derek Scissors, a China scholar at the American Enterprise Institute, a Washington think tank, said that means China will soon run out of imports of U.S. goods on which to impose retaliatory tariffs.

“As I’ve said from the beginning, China will back off its industrial plans only when U.S. trade measures are large and lasting enough to threaten the influx of foreign exchange. Not due to announcements,” he said.

Reporting by Eric Beech and David Lawder in WASHINGTON; Michael Martina and Ben Blanchard in BEIJING; Additional reporting by Lee Chyen Yee in Singapore Writing by Tony Munroe; Editing by Kim Coghill and Will Dunham

COLOMBIA

Global Affairs Canada. June 18, 2018. Canada congratulates Colombia’s president-elect

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

“On behalf of the Government of Canada, I congratulate Iván Duque Márquez on his election as the next president of Colombia. I also wish to congratulate Marta Lucía Ramirez on becoming the first woman ever to hold the office of vice-president of Colombia.

“From our strong bilateral partnership to our cooperation in regional and international organizations and initiatives, such as the Organization of American States and the Lima Group, Canada and Colombia share a commitment to democracy and human rights.

“Our two countries also have a strong trade relationship, which is supported by the Canada-Colombia Free Trade Agreement and its accompanying labour and environmental cooperation agreements. We are eager to expand this collaboration and we are pursuing negotiations for Canada to join the Pacific Alliance as an associated state, of which Colombia is a founding member.”

MINING

The Globe and Mail. 19 Jun 2018. Australian firm offers $1.8-billion to buy all of Canada’s Arizona Mining. Australia’s South32 Ltd. is offering $1.8-billion to buy the 83 per cent of Vancouver-based Arizona. South32: ‘Companies should move sooner rather than later’
NIALL McGEE, MINING REPORTER

Mining Inc. it doesn’t already own, the biggest takeover in the Canadian metals and mining sector this year.

Perth-based South32 is offering $6.20 a share, a 50-per-cent premium to Arizona Mining’s Friday close on the Toronto Stock Exchange.

In a note to clients, Toronto-based analyst Sam Crittenden with RBC Dominion Securities wrote that the deal with South32 is a “good outcome” for Arizona Mining shareholders considering its premium sale valuation compared with other similar base metals acquisitions over the past decade.

“We attribute the higher multiple to the quality of the Taylor project and short development timeline,” he added.

Taylor is the company’s flagship asset in Arizona, containing 101 million tonnes of zinc equivalent at a grade of 10.4 per cent. In a pre-feasibility study, an early stage estimation of how much a mine would cost, Arizona Mining projected that building a mine would cost about $600-million, with a start date of late 2020, and a projected mine life of 29 years.

Arizona Mining’s shares closed up 48.7 per cent on Monday, at $6.14 apiece.

South32, a senior mining company with a market capitalization of US$14.6-billion, bought its original 17-per-cent stake in Arizona Mining last year, in a “strategic investment,” a popular early-stage investment strategy that senior mining companies use to get an early “in” on juniors with promising developmentstage assets.

Richard Warke, Arizona Mining’s founder and executive chairman, said he considered not selling to South32 and instead going it alone. But after estimating where Arizona’s share price would be in four years, mine construction costs, the likely direction of metals prices, as well as geopolitics, he concluded that getting out now at a fat premium made more sense for shareholders.

“It takes all the uncertainty away,” he said.

This is the third mining company that Mr. Warke has started and sold over the past 11 years. In 2011, he sold Ventana Gold to AUX Canada Acquisition Inc. for about $1.4-billion and in 2014, he sold Augusta Resource Corp. to Hudbay Minerals Inc. for $555-million.

Last year, Mr. Warke started yet another venture, zinc development company Titan Mining Corp., which raised $50-million in an initial public offering (IPO) on the Toronto Stock Exchange. Titan is putting the funds toward resurrecting a shuttered zinc mine in New York State.

The South32 proposal to buy Arizona Mining is a much needed shot in the arm for the sluggish Canadian mining sector. According to Thomson Reuters, US$5.6billion worth of mergers and acquisitions have been unveiled in 2018, roughly the same as this time last year. In 2011, the last big year for the industry, US$39-billion worth of deals were executed for the year as a whole.

“The timing of the [Arizona Mining] transaction fits our view that now is the time for M&A,” wrote Paul Hissey, an Australianbased analyst with RBC Dominion Securities, in a note.

“Companies should move sooner rather than later. As the cycle rolls on, it’s likely that the value of this project will increase as/when metal price fundamentals improve in the coming years.”

Base metal prices, such as copper and zinc, have pulled back over the past few months as fears over a global trade war have escalated, threatening the global economy.

Arizona Mining turned to Scotia Capital Inc. for financial advice and tapped Maxit Capital as adviser to a special committee advising the board of directors. Goldman Sachs and Canaccord Genuity advised South32.

The second-biggest Canadian mining M&A deal announced this year is the $1.5-billion unsolicited joint proposal from Euro Sun Mining Inc. and Lundin Mining Corp. for base-metals company Nevsun Resources Ltd. ARIZONA MINING (AZ) CLOSE: $6.14, UP $2.01

INTEREST RATE

BANK OF CANADA. June 18, 2018. Speech. Rebooting Reference Rates. Lynn Patterson, Deputy Governor. Investment Industry Association of Canada and Institute of International Finance. Toronto, Ontario

Introduction

Thank you and good afternoon.

My topic today is interest-rate benchmarks or reference rates and the work under way here in Canada and globally to strengthen them.

Before I plunge in, let me take you back to the 1980s. Aside from the monstrous shoulder pads in my suit jackets, the decade gave us several important innovations. One of the most widely used was Windows. Not the kind you put in your house, but the operating system for your computer. Microsoft released Windows 1.0 in 1985. Most of us are now using Windows 10. Each new version improved functionality and reliability.

The most widely used benchmark—the London Interbank Offered Rate (LIBOR)—was first published in 1986, a year after Microsoft released Windows. It has undergone only one material change in the past 30 years and was certainly never originally designed to support what has become a US$350 trillion market. Now, it is difficult to imagine modern financial markets without derivatives enabled by benchmarks1. However, just as Windows 1.0 isn’t versatile enough to support new computer programs that have been introduced over the past 30 years, many benchmarks are no longer suitable for the wide array of derivatives markets they support. In addition, the scandals and mistrust related to the manipulation of benchmark rates for the financial benefit of individuals and institutions have made their future use unpalatable.

Not surprisingly, then, these problems with benchmarks have undermined confidence in their reliability and robustness. In response, global authorities are working closely with the private sector to address them.

For many of you in this room, benchmark reform is probably a familiar topic, and you understand the significant role these rates play in the functioning of markets.

But benchmarks, like Windows, are part of our day-to-day lives in one way or another. How they function and how they may change matters a great deal not just to your industry but also to most Canadians. Our financial wealth is connected to benchmarks. For example, exchange-traded funds and mutual funds may invest in products linked to benchmarks. And mortgage costs are based on bank funding costs, which, in turn, include inputs priced off derivatives contracts using benchmarks.

So, reforming this foundational element of our financial infrastructure is critical to both the financial industry and the broader economy. Indeed, we’re long overdue for an upgrade.

In my remarks today, I’m going to discuss the work afoot to either validate, enhance or transform various widely used benchmarks or create new ones. I’ll start with an overview of the work under way globally and then focus on what is being done in the United States and Canada.

The current state of play

Aside from our primary role in setting monetary policy to meet our inflation target, our mandate at the Bank of Canada includes fostering the stability and efficiency of the financial system. Benchmarks contribute to the efficient functioning of markets and the stability of the system. Getting them right matters.

The Bank of Canada is playing a role in these changes through our active membership on the Financial Stability Board (FSB), which is leading the global effort to coordinate benchmark reform. Central banks are trusted by market participants and they keep a watchful eye on risks to financial stability, so it’s important that we be involved in this work.

To be effective, a benchmark should be robust, reliable and resilient to any market stress. It also needs to be transparent and consistent with the principles for financial benchmarks set out by the International Organization of Securities Commissions (IOSCO).

These principles cover governance, quality and accountability. They stress that the data used to construct benchmarks “should be based on prices, rates, indices or values that have been formed by the competitive forces of supply and demand and be anchored by observable transactions.”

The major upgrades that have taken place since 2014 have been guided by the IOSCO principles as well as by improvements to LIBOR and other benchmarks recommended by the FSB.

The FSB is also urging countries to develop new benchmarks based on short-term, risk-free (or near risk-free) observable rates or, where they already exist, to promote more active use of them. Such benchmarks would be a better fit for many derivatives transactions.

Market participants, together with central banks and other authorities, have been actively pursuing this “twin track” approach of strengthening existing benchmarks and developing alternatives.

A risk-free rate would help accomplish two goals. First, it would reduce the dependence on any individual benchmark. Second, it would allow counterparties to select benchmarks that might more closely match the exposures they want, enabling them to better meet the needs of some derivatives markets.

For example, LIBOR is meant to represent a bank’s cost of funding. It can vary according to a number of factors, such as an increase in underlying rates or a deterioration in the creditworthiness of banks—as we saw during the global financial crisis. Imagine a sovereign issuer wanting to take a fixed-rate bond and swap it to a floating-rate liability. Since such an issuer’s creditworthiness does not fluctuate with that of the banking system, using a benchmark with a short-term rate that is not influenced by the creditworthiness of banks would be more appropriate.

Some of the alternatives that have been identified are new, while others are existing rates that are being, or have been, enhanced. In all cases, they are overnight rates. Now, many jurisdictions are exploring whether they need to develop term risk-free benchmarks, say for one- or three-month maturities, for use in mortgages and cash markets and perhaps also for some derivatives. This might help the transition from LIBOR-type benchmarks, where term rates are more widely used than overnight rates. For this to happen, such benchmarks would have to be consistent with the IOSCO standards.

The pace of all this work accelerated last summer thanks to Andrew Bailey, Chief Executive of the United Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR. He announced that LIBOR might be sustainable only until the end of 2021. After that date, the FCA will not persuade or compel banks to submit LIBOR rates. This means markets need to be ready to transition to alternative benchmarks.

This announcement came as a surprise to those who had not been closely following benchmark developments. Now, roughly a year later, there appears to be wider market acceptance of what needs to be done, and progress is continuing despite the significant complexities2.

Progress in the United States

I’ll focus on recent developments in the United States because the US-dollar LIBOR is one of the most widely used benchmarks, and Canadian investors and issuers have material exposure to it.

Consider the sheer size of the market that references USD LIBOR. In 2016, notional contracts priced off USD LIBOR totalled nearly US$200 trillion. The lion’s share of that exposure—95 per cent—was in derivatives, primarily interest rate swaps. Another US$8 trillion in cash products was based on USD LIBOR—everything from floating-rate notes to consumer loans.

The work to develop an alternative to LIBOR in the United States is being led by the Alternative Reference Rate Committee (ARRC), which is composed of dealers, asset managers, issuers, exchanges, regulators and official institutions. In April, the Federal Reserve Bank of New York began publishing the Secured Overnight Financing Rate (SOFR), which it concluded is a reliable benchmark for new US-dollar derivatives.

SOFR is an overnight rate based on the Treasury repo market. It covers multiple segments of this market, including tri-party, dealer-to-dealer and centrally cleared bilateral repos. Based on US$800 billion in daily transactions, SOFR adheres closely to the standards set out by IOSCO.

To establish SOFR as a widely used benchmark, an entire ecosystem of products needs to be built around it to encourage trading and generate liquidity in SOFR-related products. This work has begun. Futures contracts for SOFR started trading in May, with all primary dealers pledging to support that market. Trading has been light so far but is expected to increase as more market participants revamp their systems. Some time this summer, overnight index swaps referencing SOFR will begin trading, and they will be accepted for clearing through central counterparties later this year. Of course, greater market adoption will require buy-side involvement—the engagement of asset managers and issuers is critical. The next step may be the identification of a term rate based on SOFR. It is possible that this could be developed through the futures market.

Many trade groups are collaborating in this work, which goes beyond just selecting a new benchmark and developing markets that reference it. For example, fallback provisions are an important transition element. These provisions are a contingency written into financial contracts in case the current benchmark is no longer viable. Fallbacks, or contingency plans, are a feature of many things we consume in everyday life—everything from backup electrical generators in case the power goes out to a guaranteed rental from your dealership if your new vehicle needs repairs. Given the uncertainty that LIBOR will continue to exist beyond 2021, it just makes sense to have appropriate fallback provisions written into financial market contracts to allow these products to transition smoothly to new benchmarks.

The International Swaps and Derivatives Association is working on fallback language for derivatives contracts, while ARRC is helping to draft appropriate language for cash products.

Although considerable progress has been made, reform still has a long way to go. And as William Dudley, President of the Federal Reserve Bank of New York, emphasized in a recent speech, we have a compressed time frame to get the work done, so “we need aggressive action to move to a more durable and resilient benchmark regime.”

Canada’s benchmarks

What about Canada’s benchmarks?

In 2014 my colleague Timothy Lane gave a speech on benchmark reform that highlighted the work being done in Canada and the rationale for it proceeding at a different pace from that of our global peers. This is partially due to differences between our main benchmark, the Canadian Dollar Offered Rate (CDOR), and LIBOR.

CDOR is used for derivatives, floating-rate notes and loans. At the end of 2017, it was referenced by more than $13 trillion in financial instruments.

Like LIBOR, CDOR is based on submissions from a panel of banks, but there are major differences between the two.

Just to remind you, LIBOR is a borrowing rate based on estimates of the cost of unsecured borrowing transactions between banks. The volume of this borrowing has been declining, which means that LIBOR has become more reliant on the judgment of experts rather than actual transactions.

In contrast, CDOR is a bank lending rate and was originally developed by the banks themselves to facilitate the calculation of a benchmark rate for the Banker’s Acceptance (BA) market.

CDOR is the rate at which submitters are willing to lend their balance sheet to corporate clients with existing BA lines of credit. These BA lines are being drawn down daily, and BA volumes have been continuously growing.

BAs were first developed in 1962 as an alternative source of short-term funding for corporate borrowers. They are an unconditional order from a corporate client to draw funds against their established line of credit at a Canadian bank to be paid back in full at a fixed date in the future. Now, BAs make up the largest portion of money market instruments issued by non-government entities, accounting for around 25 per cent of the total money market. In 2017, an average of about $76 billion in BAs was outstanding.

A paper we published today on our website reviews the evolution of the BA market.

Since 2014, and in keeping with the IOSCO principles, CDOR has been strengthened in a number of ways. Thomson Reuters has been appointed the administrator and is responsible for the calculation and distribution of the rate. Thomson Reuters has also formed an oversight committee for CDOR to regularly review its definition, scope and methodology. And the Office of the Superintendent of Financial Institutions is now supervising the governance and risk controls surrounding the submission processes at the panel banks.

Although CDOR does not have the same vulnerabilities as LIBOR, it is being used in derivatives markets where the notional value of contracts is a multiple of volumes in the underlying BA markets and where a risk-free rate may better suit the needs of many users.

Fortunately, we already have a risk-free overnight rate. Let me introduce you to CORRA, the Canadian Overnight Repo Rate Average, which has been in place since 1997. It measures the average cost of overnight collateralized funding and is an important reference rate for overnight index swaps, which investors use if they want, for example, to hedge interest rate risk related to Bank of Canada rate decisions.

CORRA is based on actual transactions and is calculated from on-screen trades through interdealer brokers. As with CDOR, CORRA is now administered by Thomson Reuters.

So, in Canada, we have a different starting point and have made further enhancements to comply with the IOSCO principles.

Canadian alternative

Should we be satisfied that this is enough? We don’t know the answer to this question yet, but to help work through the issues we recently set up the Canadian Alternative Reference Rate Working Group (CARR)3.

We know a risk-free rate is a better fit for most derivative-related exposures. Recall the example I mentioned earlier of issuers who want to hedge their interest-rate liabilities from a fixed to a floating rate. If other currencies move primarily to using risk-free rates as their benchmark, specifically term risk-free rates, market participants may want to have the same option in Canadian dollars.

CARR is co-chaired by the Bank and a private sector participant. The group will look at potential enhancements to CORRA, such as whether the rate could be calculated using a wider range of transactions, instead of just those occurring on interdealer broker screens. These enhancements might include dealer-to-client trades. We expect that CARR will have a recommendation to bring forward on enhancements to CORRA by the end of the year.

From the outset, we wanted a diverse group to participate in CARR, people active in the marketplace, with deep expertise. We now have 21 members, some of whom are from banks, pension funds and investment firms. Because of the importance of ancillary products and exchanges where transactions are cleared, the Canadian Derivatives Clearing Corporation, the London Clearing House4 and the Montréal Exchange are observers. We feel this provides a full perspective on the market. The working group is currently meeting monthly.

In addition, we want and need feedback from a wide range of stakeholders, including various Canadian regulatory authorities. We will likely set up targeted round-table discussions and other subgroups to solicit broader input. We will be exploring a range of topics, from the type of products that use interest-rate benchmarks to the wording of the fallback provisions in Canadian cash products referencing CDOR. All of this will give us a greater appreciation of the impact these changes will have on multiple stakeholders. The demands will be high over the balance of this year and next as we assess appropriate options for Canada while keeping informed of international developments. We will share our findings widely.

If a new risk-free term benchmark is developed, market adoption will be critical. For that to happen, we need pension funds, asset managers, banks and infrastructure providers to use it. Just as new functionality in each Windows upgrade prompts the development of new computer programs, a new benchmark will gain broader acceptance with the development of other ancillary products, such as futures.

Challenges ahead

Let me turn now to the challenges that lie ahead, some of which are related to the global interconnectedness of markets.

Like our economy, where cross-border trade plays an important role, there is a large volume of cross-border financial flows, which are critical to our financial system. So we have to work in lockstep with authorities elsewhere. Many cross-currency products reference benchmarks like LIBOR and CDOR. How quickly can markets for them adapt to using these new benchmarks or curves based on them? And if some benchmarks survive and others don’t, will there need to be common approaches governing the use of interest rate benchmarks in foreign exchange markets?

There are also major issues around transition. Many contracts using benchmarks expire relatively quickly. But some have much longer maturities. For those, the transition could be much more complicated because the nature of their exposures might change.

Then there are the challenges we all face within our organizations. Transitioning to new benchmarks means adapting our trading and risk systems and back-office processes. We all know how long systems changes can take. That means starting work relatively soon, or as soon as we know what reference rates we will be using in the future. As we begin to trade in these products, we will need to be patient—liquidity may take some time to build.

Conclusion

The work under way on benchmarks is complex and requires a great deal of coordination among countries, central banks and market participants. The Bank of Canada is committing significant resources to this effort, as are private-sector market participants. The stability of financial markets is an important part of our mandate, and benchmarks play a key role in the efficient functioning of markets.

My goal today is to ensure we’re all on the same page in terms of the work on benchmarks here and globally. The Bank of Canada’s website has a page where you can follow our work as we post key findings and updates from our meetings. I hope that those of you who are not already involved will participate in some of our subgroups and comment on our work.

You will also want to think about the readiness of your own organizations. The 2021 LIBOR deadline isn’t that far away. I realize I am giving you more work to do, but it is important that you keep up with these developments and ensure you are operationally prepared.

Reference rate reform is a necessary and huge global undertaking. Getting this right is critical for maintaining trust in the financial system. While we certainly don’t anticipate the need to reform benchmarks as frequently as Windows is updated, we are clearly in need of new versions. Ongoing monitoring by regulators, central banks and market participants alike will ensure that this cornerstone of our financial market infrastructure remains robust and resilient for years to come.

Notes

1. Originally developed to facilitate cross-border lending between banks, LIBOR and other benchmarks offer measures of prevailing interest rates on which standardized contracts can be based. For example, an individual or firm may borrow money today and pay the lender interest based on market interest rates, as measured by a financial benchmark, over the course of the loan.
2. Industry groups in the United Kingdom, the United States, Switzerland, Japan and the euro area are leading the work.
3. This initiative came out of our work on the Canadian Fixed-Income Forum, an industry group that the Bank of Canada launched in 2015.
4. The London Clearing House (LCH) operates SwapClear, the dominant global system for centrally clearing over-the-counter interest rate swaps, including many Canadian-dollar interest rate swaps.

FULL DOCUMENT: https://www.bankofcanada.ca/wp-content/uploads/2018/06/remarks-180618.pdf

INFRASTRUCTURE

REUTERS. JUNE 19, 2018. Canadian National Railway to invest C$210 million in Saskatchewan

(Reuters) - Canadian National Railway Co (CNR.TO) said on Tuesday it plans to invest C$210 million ($158 million) in Saskatchewan this year to expand its network across the province.

Canada’s largest railway operator is rolling out its biggest expansion in decades, including a roughly 20 percent boost to its workforce over two years by the end of 2018.

Canadian National Railway has also offered bonuses to attract more workers, as railway companies battle to unclog rail bottlenecks that left Canadian commodities trapped in landlocked western provinces this winter.

The company, which said on Tuesday the investment was part of its C$3.4 billion capital program for 2018, had earlier announced investments of around C$130 million in Manitoba, C$340 million in British Columbia, C$320 million in Alberta and around C$210 million in Quebec.

Canadian National Railway Co
107.76
CNR.TOTORONTO STOCK EXCHANGE
-1.07(-0.98%)
CNR.TO

CNR.TO

Reporting by Laharee Chatterjee in Bengaluru; Editing by Saumyadeb Chakrabarty and Sriraj Kalluvila

CANADA - TUNISIA

Global Affairs Canada. June 19, 2018. Canada strengthens collaboration with Tunisia

Ottawa, Ontario - Canada and Tunisia have a close relationship based on shared respect for democracy and the rule of law.

The Honourable Chrystia Freeland, Minister of Foreign Affairs, the Honourable Marie-Claude Bibeau, Minister of International Development and La Francophonie and the Honourable François-Philippe Champagne, Minister of International Trade, today concluded a successful visit with Khemaies Jhinaoui, Tunisia’s Minister of Foreign Affairs.

During this visit, ministers Freeland and Bibeau announced funding of $8.6 million to increase women’s participation in leadership roles in Tunisian municipalities and to protect Tunisia’s borders from threats of terrorism and illicit trafficking.

The Ministers discussed trade and announced their intention to sign a social security agreement between Canada and Tunisia in the near future. Minister Jhinaoui‎ also met with Minister Champagne to discuss ways to advance the current negotiations towards a Foreign Investment Foreign Investment Promotion and Protection Agreement (FIPA) between Canada and Tunisia.

Quotes

“I was very pleased to welcome Minister Jhinaoui to Ottawa and explore ways of increasing collaboration between our two countries, whether in trade, security or women’s empowerment in Tunisia. I salute Tunisia’s important progress in recent years toward democratic reform, and I look forward to continuing to work together to promote democratic values in the Middle East and around the globe.”

- Hon. Chrystia Freeland, P.C., M.P., Minister of Foreign Affairs

“Collectively, everyone benefits when the delivery of municipal services is effective and diverse and inclusive for women and vulnerable populations. I am convinced that involving more women in local government decisions is the best way to make sure that their needs are taken into account.”

- Marie-Claude Bibeau, Minister of International Development and La Francophonie

“Expanding our trade relationship with countries around the world is a cornerstone of our progressive trade agenda. Successful negotiations towards a FIPA will build on our people to people ties and provide for a more stable and predictable investment environment for our businesses in both Canada and Tunisia. ”

- Francois-Philippe Champagne, Minister of International Trade

Quick facts

• During the Tunisia 2020 conference that took place in November 2016, Minister Bibeau announced a $24-million integrated support plan for Tunisia over a period of four years (from 2017 to 2021).
• Through its Counter-Terrorism Capacity Building Program, Canada is providing a total of $7.6 million to Tunisia to support the country’s border security and to limit the movement of foreign terrorist fighters. The projects receiving the funding also focus on strengthening community resilience against violent extremism.
• Tunisia presents notable commercial opportunities for Canada in the infrastructure, consulting engineering services, agriculture, education, information and communications technologies and green technology sectors.
• Canada has international social security agreements with more than 50 countries that offer pension programs that are comparable to the Canada Pension Plan (CPP). One of the objectives of these agreements is to eliminate cases where workers might have to contribute to the social security system of the other country for the same work; another is to make sure that workers’ coverage under the CPP will not be interrupted.

Backgrounder

Funding for the initiatives announced today by the Government of Canada amounts to approximately $8.6 million.

Program for an inclusive municipal leadership in Tunisia

Funding announced: $6.9 million
Implementing partner: Federation of Canadian Municipalities
Time frame: 2018 to 2022

This project aims at increasing the participation of women in designing municipal services that are more democratic, inclusive and responsive to community needs. It will empower women to take part in decisions affecting their communities and to assume leadership roles at the local level. The project will build local governments’ capacities to help them promote the participation of women in municipal governance. It targets specific cities in poor regions of the country. The project also aims to encourage local governments to adopt best management practices so they can deliver municipal services that are more responsive to women and to vulnerable populations. It also promotes the involvement of women in government bodies and in the Fédération Nationale des Villes Tunisiennes [national federation of Tunisian municipalities].

Strengthening Tunisian capacities in operational control of cross-border security threats, illicit trafficking and terrorism

Implementing partner: UN Office on Drugs and Crime
Funding announced: $1.6 million
Time frame: 2018 to 2019

This project is funded through the Government of Canada’s Counter-Terrorism Capacity Building Program. Its overall objective is to prevent and combat terrorist activity at Tunisian borders by helping the Tunisian government to fully establish a risk and threat analysis management centre. This centre will enable officials to better identify threats of terrorism and illicit trafficking at Tunisian land, air and sea borders by strengthening Tunisia’s ability to collect and analyze threats and risks at those borders. As a result of this project, the borders will become more secure while also allowing for the smooth processing of people and goods legally entering and exiting the country.

TRADE PROMOTION

Department of Finance Canada. June 19, 2018. Canadian Business Growth Fund to Help Canadian Companies Create Jobs

Ottawa, Ontario – Canada’s economic success rests not only on the hard work of Canadians, but also on the ability of Canadian businesses to access the capital they need to grow, create jobs, and compete in the global marketplace.

Finance Minister Bill Morneau and Minister of Small Business and Tourism and Leader of the Government in the House of Commons Bardish Chagger today praised the Canadian Business Growth Fund for its commitment to help small- and medium-sized enterprises in Canada grow, create more good, well-paying jobs, and compete internationally.

Canada’s leading banks and other key financial institutions have joined forces through the Fund, jointly committing up to $1 billion over 10 years to support the growth of Canada’s promising small- and medium-sized enterprises.

In addition to making this long-term capital available to high-growth companies, the Fund will provide recipient companies with guidance, mentorship and access to investors’ networks, so that the next generation of Canadian entrepreneurs and innovators can grow their businesses, create good, well-paying jobs for Canadians, and lead the way in the new economy.

Quotes

"I applaud the efforts of Canadian financial institutions to work together to help Canadian companies grow, and to help build an innovative and diversified economy that will create jobs and deliver long-term economic growth for our country. With access to more growth capital, Canadian businesses will have more opportunities to succeed, to grow, and to become true global leaders."

- Bill Morneau, Minister of Finance

"Thanks to this first commitment from the Canadian Business Growth Fund, promising small and mid-sized firms can now access funds to grow their businesses and reach global markets. This important announcement is a big step forward in providing Canada’s next generation of entrepreneurs and innovators with much needed capital to become global leaders, creating good, middle class jobs for Canadians."

- Bardish Chagger, Minister of Small Business and Tourism and Leader of the Government in the House of Commons

Quick Facts

• The Canadian Business Growth Fund will invest as much as $1 billion over 10 years to support Canada’s high-growth small- and medium-sized enterprises. It will serve to fill a capital need by offering minority equity investments in ambitious Canadian companies.
• The Fund aims to fill a gap between the small-scale financing options generally available to entrepreneurs and smaller firms, and the range of sources available to larger, more established companies. A typical investment amount in each company that benefits from the Fund is expected to range between $3 million and $20 million.
• The Fund will apply commercial decision-making and discipline to investments, and will provide advice, mentorship and access to talent pools to help firms realize their full potential.

FULL DOCUMENT: https://www.fin.gc.ca/n18/18-049-eng.asp

________________

LGCJ.: