Archive for May, 2009

The following appeared in today’s edition of “American Shipper”.

Port of Montreal officials said Thursday their port is performing better than competitors.

Speaking at the port’s annual general meeting, Sylvie Vachon, acting president and chief executive officer, said the economic crisis has affected the marine shipping industry, particularly containerized cargo, but that Montreal has limited the downturn in the number of containers handled to less than 10 percent.

Combined first quarter traffic is down 14.1 percent compared to the same quarter last year.

“These results are definitely better than those of our competitors, which means that the Port of Montreal continues to benefit from its structural advantages and its market diversification,” Vachon said.

A recent report by Datamyne found import container volumes at the top 10 U.S. ports were down from 14.5 percent to 29.4 percent, averaging a 21.3 percent decline.

Montreal also performed better than its main competitors on the East Coast in 2008, moving a record 1.47 million TEUs in 2008, 8.1 percent more than in 2007, Vachon said.
Bulk cargo volumes were 13.5 million tons, up 1.3 percent. The port handled 1.5 million tons of grain in 2009, a 16.8 percent increase over the prior year.

“These results show that the port and its users were able to fully benefit from the unique competitive advantages offered by the Port of Montreal to serve central Canada and the U.S. Midwest markets on one side and, on the other, the Northern European and Mediterranean market,” Vachon said. She signaled out the performances recorded on the Mediterranean and West Indian routes, which respectively experienced growth of 28.4 percent and 37.2 percent in the number of TEUs handled.

“This development allows us to improve our market diversification,” she added.

The following is excerpted from today’s edition of “The New York Times”.

Ron Kirk, the unlikely new U.S. trade representative, often jokes about not having a deep background in the arcane world he is wading into, a place of impenetrable jargon and negotiations that seem to drag on for decades…

…European officials say relations are off to a good start, the contours of Mr. Kirk’s trade agenda remain only partially defined. He has vowed to push for a revival of the Doha Round of global trade talks, though doubts persist about its prospects. And he indicated that responsibility within the administration of President Barack Obama for one critically important trade relationship, with China, would remain divided among departments. Mr. Kirk will not accompany Timothy Geithner, the U.S. Treasury secretary, on his trip to Beijing this coming week.

In fact, there are questions about the new administration’s intentions when it comes to promoting free trade; it is not among 29 priority issues listed on the White House Web site. And in a time of global financial and economic crisis, protectionist sentiments are running high. Americans — along with people elsewhere — are dubious about expanding trade deals.

“I understand the pain,” Mr. Kirk said… “To save trade, we’ve got to do it in a way that we are more responsible, and responsive, to those who are skeptical about it.”

Mr. Kirk, a big, droll man with an outsize personality, said that he does not have “deal fever,” indicating no rush to slam together new trade deals, even if the local politician in him hates to see solvable issues drag on.

Mr. Kirk has said that existing trade pacts must be more strictly enforced, particularly on environmental and labor standards, even if the bad economy complicates that work.

Some trade specialists see his early remarks as auguring a reassuringly steady course.

“So far, the big story is the continuity of U.S. trade policy” under Mr. Kirk, said Daniel Griswold, director of the Center for Trade Policy Studies at the libertarian Cato Institute. “It’s been pleasantly surprising for trade advocates.”

But Alan Tonelson, a research fellow with the U.S. Business and Industry Council, a lobbying group, criticizes Mr. Obama for focusing on completing bilateral trade deals rather than pushing a more ambitious trade agenda and doing more to combat protectionist practices elsewhere.

Mr. Kirk seems patient and unperturbed. He suggested that there might be value in starting with smaller agreements like the one started with Panama while rebuilding a foundation of public trust in trade.

He offered no magic solution to narrowing the yawning trade gap with China, saying he hoped Beijing will see its own interest in becoming “a little less export-dependent and increase domestic consumption, which will give us a little more breathing room.”

Mr. Kirk has vowed to push for a revival of the Doha Round of trade talks, though doubts persist about its prospects. He also suggested it would be “arrogant” to think the United States could snap its fingers and revive prospects for a global trade deal, which stalled last year after seven years of off-and-on talks.

Still, one World Trade Organization official said that Mr. Kirk had “created a lot of goodwill” among trade diplomats by prominently supporting the so-called Doha talks. He spoke on grounds of anonymity because he was not authorized to discuss the matter.

While Mr. Kirk, 54, … remains something of an enigma abroad. He lacks the classic, insider background of more recent U.S. trade representatives, who had extensive Washington experience as well.

Yet as mayor, Mr. Kirk liked to call Dallas “the capital of Nafta” — the North American Free Trade Agreement. “He truly saw Dallas as the gateway to international trade,” said Justin H. Lonon, then Mr. Kirk’s press secretary, and now vice chancellor at Dallas Community College.

In some ways Mr. Kirk follows the model of another Texan, Robert Strauss, who was a lawyer and political activist before being named U.S. trade representative by President Jimmy Carter. Mr. Strauss is remembered by some as one of the best, having successfully completed the Tokyo Round of Multilateral Trade Negotiations and secured its Senate ratification.

Bruce Buchanan, a professor of government at the University of Texas, says Mr. Kirk has “natural skills” that fit his new job. “He is very adept at getting groups to work together, and he is very much pro-free trade,” Mr. Buchanan said. “He’s a man of talent.”

Mr. Kirk, the first African-American to hold the job, is often compared now to Mr. Obama: pragmatic, with abundant charisma, someone who learned growing up to bridge racial and ideological divides. When a race riot broke out at his high school in Austin, Texas, where he was senior class president, he helped mediate.

With a law degree from the University of Texas, he went to work for Lloyd Bentsen, the now-deceased Democratic senator from Texas, and later was named the secretary of state of Texas. When Mr. Kirk set his sights on the Dallas mayorship, it seemed a reach. “He was,” Mr. Buchanan noted, “a black man in a very conservative city that did not have a great racial history.”

But by marshaling an unlikely coalition of black voters and white businesspeople, Mr. Kirk easily won election in 1995.

He lowered taxes, helped bring down the crime rate, and whipped a notoriously dysfunctional City Council into shape. This led to his re-election in 1999 with what Mr. Buchanan called an “astounding” 74 percent of the vote.

Mr. Obama, while still an Illinois state politician, studied Mr. Kirk’s rise. They met and bonded.

“Ron is the kind of guy who never met a stranger,” said Dave McNeely, a political columnist in Austin. “He’s very affable, gregarious, funny, has a wicked sense of humor and he brings people together well.”

The following appeared in the 28 May 2009 edition of “The Journal of Commerce”.

The Japanese government released an annual report on what it deems unfair practices by trading partners, including the controversial “Buy American” clause and 35 other policies and measures taken by the United States.

Among those U.S. policies and measures are several related to maritime transport, including the Harbor Maintenance Tax and the Jones Act.

The annual report, released by the Ministry of Economy, Trade and Industry on Wednesday, warned of rising protectionism around the world amid the deep global economic downturn.

This year’s report listed a total of 118 policies and measures taken by other countries and regions, up from 113 in the previous year’s report. Of the 118 policies and measures, 36 have been taken by the United States, 24 by China, 21 by the 10-member Association of Southeast Asian Nations, 14 by the 27-nation European Union and the remaining 23 by other countries and regions.

Concerning the maritime transport-related U.S. policies and measures, the report specifically singled out the HMT and the Jones Act, which it said could be in violation of international trade rules set by the World Trade Organization, the Geneva-based watchdog on global commerce.

The report criticized the HMT and Jones Act as possible violations of the principle of “national treatment,” one of the basic principles set in the WTO rules that guarantees equal treatment between domestic and foreign companies.

According to the report, the U.S. has operated the HMT system, which is designed to impose ad valorem taxes on freight belonging to entities that use harbors within the U.S., in accordance with the Water Resources Development Act of 1986 (Public Law 99-662) and its amendments since 1987.

In March 1998, the U.S. Supreme Court ruled that the HMT was unconstitutional with respect to exports. In response to the decision, the U.S. government stopped collecting the tax from exporters the following month. But the HMT is still imposed on importers, according to the report.

The Merchant Shipping Act of 1920, or the Jones Act as it is commonly called, specifies that only ships owned by U.S. citizens, built in U.S. shipyards and run by U.S. crews are permitted to engage in domestic passenger and cargo transport within the U.S. and its territories. This restricts exports of foreign-made ships to the U.S., the report said.

In addition to the national treatment section, the report also criticized the Alaska Power Administration Asset Sale and Termination Act and the Maritime Security Program (MSP), as well as the Jones Act, in its section on trade in services.

The Alaska Power Administration Asset Sale and Termination Act, passed in November 1995, requires the use of U.S. ships with U.S. crews in the export of Alaskan crude oil. The MSP, in place since 1996, provides subsidies to certain U.S.-registered vessels, the report said.

The following was written by Peter G. Hall, Vice-President and Chief Economist, Export Development Canada.

Canadian exporters have faced significant new-millennium challenges. The irrepressible loonie, increased global competition, a thickening border with our top customer, bottlenecks in trade infrastructure – any one of these would have been challenge enough. Even so, exporters have managed to grow their business and create key success stories, thanks to vibrant global demand. With that key element now gone, export sales have suddenly become tough for all industries.

Exports fell into recession last year, led by a sharp drop in auto sector shipments and ongoing woes in the forestry industry. But at the same time, others were soaring. It was a great time to be producing raw materials: the energy, agri-food and fertilizer industries each saw sky-high gains. Also, exports of other transportation equipment, ores and metals, and industrial machinery and equipment posted respectable gains. The story for 2009 is much more uniform.

This year, there seem to be two categories: bad, and worse. Many of last year’s high-flyers will experience the deepest sectoral declines in 2009 export shipments. Few were not shocked by the extent of the collapse in energy and base metal prices, significant enough to put certain key projects in jeopardy, at least in the short term. Energy sector exports are forecast to tumble by 41% this year, before regaining 16% of the lost ground in 2010. Collectively, ores and metals will see a 33% drop in 2009 before a modest rebound in prices lifts 2010 shipments by 11%.

Falling agri-food and fertilizer prices were even more surprising. Growing demand for food from burgeoning new middle class consumers in key emerging markets fomented a wave of concern about food shortages just over a year ago. This sparked a run on supplies in a number of developing economies, and prices soared. Peak price levels were not expected to persist, but the general trend was, given the rise in emerging market wealth. Not so – agri-food exports will likely fall 12% this year, while fertilizer shipments are in store for a 55% hit.

After their 22% drubbing last year, auto sector exports are projected to decline by just 3% in 2009. It seems impossibly modest, given current news reports, but Canadian dollar movements are a key factor. Net of the boost to the forecast from the loonie’s depreciation this year, price-adjusted shipments are expected to fall by 18%.

If there is better news, it’s in the rail and aerospace industries. Both will experience milder declines in real activity this year. Rail shipments will benefit from substantial fiscal stimulus in a number of international markets, a large share of which will focus on urban infrastructure. The aerospace sector entered the downturn with a decent order book, which will shield near-term exports. For the industry, emerging market exports will outpace sales to traditional customers.

On an even brighter note, most industries will move back into the black in 2010, if only modestly, as the global economy begins to find a more solid footing for future growth.

The bottom line? 2009 will put most industries to the test, and mild growth in 2010 will keep activity levels low. This will restore global supply-demand balances, setting the stage for rebound.

The following is excerpted from today’s edition of “globeandmail.com”.

Colin MacDonald has weathered currency fluctuations before, and he has a strategy to fight this one as well.

Mr. MacDonald’s company… buys most of its supplies in Canada with Canadian dollars, but exports 91 per cent of its goods in the currencies of its target markets. However, it is particularly adept at hedging, an analyst said yesterday.

The dollar temporarily topped 90 cents (U.S.) yesterday before giving up ground, continuing its rapid rise against the weakened U.S. currency. And at least one bank believes it will hit parity with its U.S. counterpart by the end of the year.

“It always does have some impact on the bottom line when the currency changes,” [Mr. MacDonald] said. “It just adds another complexity to the business.”

“Obviously hedging is always an option and you typically hedge out those sales that you have some contract rate at because you want to create certainty with those sales. You have assumed some exchange rate when you have made the contract, so you want to lock that in.”

The company typically sets its sales contracts between six months and a year in advance and, so far, the company is “enjoying a good year sales wise,” Mr. MacDonald said.

“The other response to currency fluctuations is to create value for your customers, so that you can pass some of the necessary pricing increase along over a reasonable period of time,” Mr. MacDonald said.

The dollar has been rising rapidly, posing a problem for export-sensitive manufacturers who sell in the United States, although after breaching the 90-cent mark yesterday it fell back to 89.33 cents, down from Tuesday’s close.

The dollar “has been on bit of a tear for the last little while” and could reach parity with the weakened U.S. currency before the end of this year, Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said in an interview….

“And we are not expecting a significant improvement in commodity prices at this point, so it will be quite a difficult situation for a lot of our Canadian industries. It’s already a very difficult environment to begin with. Beyond the currency, we have border issues, we have the very weak state of global demand,” he said.

Mr. Osborne and his fellow strategists at the Toronto-Dominion Bank said the dollar is rising because the U.S. currency is experiencing broad-based weakness, and the Canadian economy is fundamentally sound.

“We’re forecasting parity, and we think we’ll hold around par until the early part of next year, and then we will see the Canadian dollar retreat as the U.S. economy stabilizes and the U.S. dollar continues to improve.”

The loonie was last at par last summer before tumbling to the 77-cent range last fall.

Although the currency has been steadily rising, Bank of Nova Scotia currency strategist Sacha Tihanyi questioned how long current foreign exchange trends will continue. The dollar may have “overshot,” he said.

The following is excerpted from the 28 May 2009 edition of “New York Times”.

Global trade could collapse if the world does not take coordinated, concrete steps to finance trade flows, Prime Minister Gordon Brown said in comments published on Thursday.

Writing in the Wall Street Journal, Brown said the global financial crisis had become a trade crisis, with major exporting countries among the worst affected by the downturn and developing countries hard hit by falling demand.

Japan lost half its export market in the first quarter of this year and Chinese exports have fallen 17 percent over the past year, resulting in 26 million lost jobs, he said.

“The simple truth is that trade is the most serious casualty of the global financial crisis, with a vicious circle emerging of falls in exports leading to falls in production and rising job losses, leading to further falls in consumer demand, exports, etc,” he wrote.

“There can be no recovery in the global economy without a revival of world trade. Trade was the driver of post-war recovery in Japan, Germany, the rest of Europe and the United States, and the engine of growth in Asia in recent decades.”

In order to revive growth, Brown proposed a series of steps, including a massive injection of funding to finance trade flows. At the G20 summit Britain hosted in early April, governments agreed to provide $250 billion (157 billion pounds) of trade financing in 2009-11.

“While credit markets have loosened up, our second step must be to ensure that governments and international organisations honour the commitments they made,” Brown wrote, referring to the $250 billion. “Indeed, we may need to go further and provide even more money to finance international trade.”

He also reiterated his call for countries to avoid protectionism in trade policy, and said the need to conclude the Doha round of international trade talks was ever more pressing.

“The collapse of global trade is the most immediate issue we face,” he wrote, saying that 100 million more people had been thrown into poverty as a result of the economic crisis….

The following is excerpted from the 26 May 2009 news release by Public Safety Canada.

The Honourable Peter Van Loan, Minister of Public Safety and the Honorable Janet Napolitano, U.S. Secretary of Homeland Security, toured port operations today on both sides of the shared United States/Canada border and signed an Agreement to make Shiprider -joint law enforcement teams stationed along the international maritime border - permanent. …

“Shiprider is a critical security partnership between the United states and Canada, improving our cross-border operations,” said Secretary Napolitano. “Through coordinated enforcement along our shared waterways, we can better interdict offenders trying to flee across our maritime border.”

Today’s agreement underscores the strong partnership between the U.S. and Canada and a mutual commitment to the safety of a shared border.

Shiprider enables the RCMP and the U.S. Coast Guard to cross-train, share resources and personnel and utilize each others’ vessels in the waters of both countries, such as the Great Lakes and St. Lawrence Seaway. Working together, Canadian and U.S. law enforcement will help ensure that criminal organizations no longer exploit the shared border and waterways because of the inherent jurisdictional challenges associated with cross-border policing.

Minister Van Loan and Secretary Napolitano also emphasized the importance of managing the shared border in a way that not only strengthens security but also facilitates trade, jobs and economic growth. Specifically, both also reminded Canadian and U.S. citizens alike to ensure that they possess appropriate travel documents, as the June 1, 2009, deadline for the Western Hemisphere Travel Initiative (WHTI) approaches.

The Framework agreement on Integrated cross-border maritime Law enforcement operations between the government of Canada and the government of the United States of America is available on the Public Safety Canada website at: http://www.publicsafety.gc.ca/prg/le/_fl/int-cross-brdr-martime-eng.pdf.

The following is excerpted from today’s edition of “The New York Times”.

Foreign trade has been a potent force for good over more than half a century. It propelled Japan’s emergence from the ashes of World War II and helped it become an industrial powerhouse. It is the cornerstone of development strategies from China to Brazil. It is what links countries all over the world in a network of production that underpins global prosperity.

Today, trade is collapsing, one more casualty of the global financial crisis. That is especially bad news for countries that are dependent on trade for economic growth&hellip

Exports from the United States declined 30 percent and imports 34 percent in the first quarter of the year from the previous three months. Imports into countries that use the euro from outside the area were down 21 percent compared with the first quarter of last year&hellip.

The drop in trade is spreading economic weakness across the world, as one country’s drop in imports translates into a fall in exports, and production, in another.

Japan, whose economy depends heavily on sales to the United States, saw exports plunge 45.5 percent in March compared with March of 2008. In the first quarter, its economy contracted 15.2 percent at an annual rate, the worst performance since 1955. Exports from China and Brazil both fell 20 percent in the first quarter, compared with the year before. Mexico — linked tightly to the United States market through Nafta — saw exports collapse almost 29 percent while the Mexican economy contracted 21.5 percent at an annual rate, more than three times the rate of decline in the United States.

The main forces clobbering trade seem to be the fall in demand and investment that started in the United States and Europe, and the seizing up of trade finance, which funds up to 90 percent of the world’s merchandise trade, worth some $16 trillion.

The impact has been magnified by the far-flung nature of multinational companies’ production networks — where a factory in one country makes parts that are used by a plant in another country. As demand for their products has declined, the pain has moved across countries up the chain of production. The thawing of credit markets has helped resuscitate trade finance some.

Governments of the 20 biggest economies agreed to nudge it along, ensuring $250 billion of trade finance would be available over the next two years. They should keep those pledges, and they may have to do more.

Protectionism also remains a serious danger. With voters insisting that politicians protect their own, many countries have already imposed new restrictions on imports. So far they have been relatively modest. But as unemployment continues to rise, the temptation — and the pressure — will grow.

Earlier this year, the Global Monitoring Report by the World Bank and the International Monetary Fund noted that “a pattern is beginning to emerge of increases in import licensing, import tariffs and surcharges, and trade remedies to support industries facing difficulties early on in the crisis.”

Of particular concern are attempts by governments — including in the United Kingdom, the Netherlands and Switzerland — to ensure that banks bailed out by taxpayers favor domestic borrowers. While the Obama administration has not imposed similar requirements, there is pressure from Congress and the public to make American banks that receive TARP money lend primarily, if not exclusively, to American borrowers. That would be a mistake. One of the sure ways to prolong the global recession is to create even more barriers to global trade.

The following was written by Peter G. Hall, Vice-President and Chief Economist, Export Development Canada.

When it comes to Canadian exports, the Andean region – Bolivia, Colombia, Ecuador, Peru and Venezuela – is not likely top-of-mind. But Canadian exporters and investors have been very active in the region in recent years, and there is much potential for growth well into the future.

Last year, Canada exported $2.1 billion worth of goods to the region. What is more, 2008 growth was about double Canada’s average, at an impressive 19%. This was no flash in the pan, either – growth has maintained a solid, double-digit pace in each of the last four years. Not only that, but over the same period, Canada also saw consistently strong growth in each of the five markets.

Agri-food exports dominate all other industry categories, at about 40% of total regional shipments, yet growth is below the regional average. Machinery and equipment exports together account for a sizable 16% of Canadian exports to the region, and as a group, grew at a 22% pace over the past four years. Other top exports are paper products, minerals and refined petroleum products.

Canada’s activity in the region is not confined to exporting. Canadian firms have undertaken direct investments in the region of over $4.4 billion, over half of which is in Peru. Colombia makes up an additional $1 billion, a tally that is growing by 28% annually. Venezuelan holdings are at $850 million, and rising 15.5% annually. Canada is also importing from the region. Growth in the past three years has been well below export growth, but with inbound shipments of $4.4 billion, is about 2.5 times as large. Crude and refined petroleum account for one third of imports, while precious metals make up an additional 27%. Imports of fruits, nuts and coal are also significant.

Strong recent growth in the Andean region has powered Canada’s regional trade and investment success. Economy-wide growth averaged 5.8% annually in the 2003-07 period for the region, well ahead of global growth, although shy of the emerging market average. The worldwide recession is affecting the region, where the economy is expected to fall back by 0.7% this year, and see little growth in 2010. A solid recovery is forecast beyond the near term, although average growth will not likely reach the heights seen in 2003-07.

Future Andean trade and investment opportunities are manifold. Oil and gas and mining activities are promising, and will gain new lift as the world economy recovers. The free trade agreements signed with Peru and Colombia in 2008, once ratified, set the stage for enhanced bilateral activity. There are also new areas of opportunity. Significant infrastructure deficits exist in each country, and so far Peru and Bolivia are addressing this with multi-billion dollar programs. These are expected to begin in the near-term, but will extend far beyond the global economic recovery.

Over the years, EDC has been very active in the Andean economies, and have just stepped up our market presence. With the significant regional opportunities in mind, EDC last week opened up a representation in Lima, Peru aimed at facilitating greater trade and investment in the region.

The bottom line? Global recession is affecting the Andean region, but it has a new dynamism that bodes well for future trade and investment – a future that Canada has every reason to share in.

The following is written by Danielle Goldfarb, Associate Director of International Trade and Investment Centre, Conference Board of Canada.

To the trade-dependent Canadian eye, worrisome signs of U.S. protectionism appear to be everywhere. This week, Obama’s pick for U.S. Trade Representative said that he will vigorously enforce U.S. trade rights. This follows his announcement a few weeks ago that Canada, for the first time, is on his department’s “priority watch list”, reflecting concern about inadequate copyright reform and weak border enforcement.

Add to this the new head of the U.S. Department of Homeland Security talking tough on the Canada-U.S. border, requirements to “Buy American” in the stimulus package, and new legislation requiring country of origin labels on meat – which protects American beef and pork farmers from Canadian competition. Moreover, the U.S. is not the only one threatening protectionist action: a new Brookings Institution study shows that countries have increased their legal actions against imports by 19 per cent in the first quarter of 2009.

Our country has long depended on highly integrated cross-border supply chains to boost our living standards. Even before the current economic crisis, the Canada-U.S. border was becoming thicker and cross-border supply chains were shrinking. So Canadians should be worried if we are indeed moving away from free trade, particularly with the U.S. Protectionism could make Canada a much less attractive place to buy inputs, goods or services from, and ultimately invest in. That would put a serious crimp in our living standards.

While these concerns are legitimate, “the sky is not falling”, argues Marc Busch of Georgetown University in a new piece for the Conference Board of Canada’s International Trade and Investment Centre. Yes, there is still a lack of clarity concerning Obama’s vision for trade, and Congress will still “flirt with protectionism”. In a roundabout way, however, Washington’s new emphasis on enforcing trade agreements will in fact make open markets more likely – or at least closing them less likely.

How? Busch argues that as Obama emphasizes enforcement, many trade sceptics in Congress will have cover to support the President on pro-trade policies, enabling “the administration to chart a course toward rebuilding America’s confidence in open markets”. And, he argues, the beauty of enforcement is that if others must keep up with their obligations, so too must the U.S. For example, U.S. country-of-origin labels for meat are now subject to legal scrutiny at the WTO.

Moreover, things could be a lot worse in the face of a very trade-sceptical U.S. public in the midst of an economic crisis. But Obama’s initial reaction to including “Buy American” provisions in the stimulus package was to ensure that they did not run afoul of the U.S.’ WTO obligations. This is important: the U.S. does not usually say it will place international trade obligations ahead of domestic goals. Obama and his Trade Representative have also made a point of warning of the dangers of protectionism.

Despite this positive spin, Canada must be vigilant in ensuring its access to the U.S. market is not compromised. Industry Minister Tony Clement’s lobbying push in Washington … is important. To be most effective, however, Canada must make its case directly to American industrial constituents hurt by U.S. protectionism. This is the most certain way to influence Congress and protect Canadian interests – and living standards.