International Trade and Investment, The Economy, What's New

B.C.’s pipeline demands set a dangerous precedent

Read it in the Globe and Mail here.

Oh, the irony. Just as we start celebrating Canada’s 150th birthday as a nation, a dangerous precedent threatens, for the future, a hallmark of this country’s past success.

Almost five years ago, British Columbia announced five “conditions” for its “approval” of the Kinder Morgan TransMountain pipeline expansion. The last of the five conditions – that there be a “fair share of benefits” for British Columbians – has now been met, with Kinder Morgan agreeing to pay $500-million to $1-billion over 20 years to the B.C. government. Environmental concerns will be addressed by the 194 specific national and provincial conditions for the project, plus the federal commitment to a $1.5-billion ocean-protection plan. But the fifth condition was all about money and local politics.

The problem? We don’t hold each other up for ransom in this country. At least, we haven’t for 150 years.

Canada is an unlikely success story. Our vast geography and unique mix of backgrounds led to the creation of a unique, decentralized federation. After 150 years of this grand experiment, we have a lot to be proud of. But it has only worked because people of courage were willing to compromise and invest – both politically and financially – for the greater good. They created our Constitution, which unites us politically.

Yet, we seem to be losing our understanding of Canadian history and of the Constitution. Either that, or maybe just the political courage needed to uphold it. Rather than nation-building, this is nation-dividing.

It is hard to blame British Columbia for trying to exact as much as possible for itself. The blame really lies with those, including the federal government, who five years ago said nothing when these conditions were first proposed. By their silence, they seemed to accept the idea that, somehow, British Columbia had the right to say no.

But, in Canadian law, it did not. Neither provincial governments nor municipalities have, under the Constitution, the power to block cross-border pipelines.

Of course, they have the right to raise local concerns – and other provinces, as well as the federal government, need to listen, understand and sometimes compromise. Collectively, we need to ensure best practices in terms of safety and the environment, including prevention, mitigation and the like. But charging a price to ensure a “local” economic benefit flies in the face of the concept of national undertakings, and is a dangerous precedent.

Imagine Ontario refusing to allow railway track to be laid across it, because transporting grain from the Prairies to Montreal or St. John for export was of “no benefit” to Ontario. Imagine if more rail capacity is needed to ship wheat and potash from Saskatchewan, and Alberta decides to charge a percentage of the price just to allow these products to pass through?

The drafters of the Constitution understood the local pressures faced by politicians, the temptation to succumb to them and the need to protect the national interest. Section 92 sets out all of the provincial powers, but specifically reserves to the federal Parliament key jurisdiction over shipping lines, railways, canals, telegraphs and other works or undertakings (including pipelines) that connect one province with any other province, or beyond.

Barack Obama, worrying about the direction the United States seems to be taking, said this in his farewell speech: “Our Constitution is a remarkable, beautiful gift. But it’s really just a piece of parchment. It has no power on its own. We, the people, give it power – with our participation, and the choices we make … [and] whether or not we respect and enforce the rule of law. America is no fragile thing. But the gains of our long journey to freedom are not assured.”

We in Canada may be less concerned with our freedom, but we should be concerned about how we function as a country. Canada is no fragile thing, but the success of our 150-year journey has been in large part due to how our Constitution functions. Just as our neighbours to the south must work to uphold their Constitution, we too must uphold ours.

The Economy, What's New

The Case for Free Trade within Canada

It’s actually harder to sell goods and services between provinces and territories than to the United States.

(read it in The Walrus here.)

July 29, 2016

Imagine your community has a plant that manufactures industrial lighting. Customers include hospitals, schools, and office buildings. The plant employs sixty-five people. The community has received notice that it will soon be closing.

The owner of the business has four similar plants across the country. Because of high transportation costs, it was more cost-effective to have multiple plants able to satisfy customers in different regions. But the owner has decided to invest in new equipment to switch production to much more energy-efficient led lighting. Not only is led lighting better for the environment, it is smaller and lighter, and transportation costs are less of a factor. Consolidating the four plants into one will allow the owner to afford the new equipment purchase needed to switch to led manufacture.
Lowering trade barriers and increasing trade flows are actually still better for most communities.
There are good things in that story: a growing business embracing innovation to produce better, environmentally friendly products more efficiently. But those sixty-five people—their families, and the people they, in turn, buy things from—are worried and unhappy. Unless and until they find other, comparably-paying work, there will be some challenge for your community and that’s where everyone’s focus is. So what happens? Invariably, people will call on their local politicians to “protect” the plant. The politicians should “protect those jobs”; “protect those opportunities for the younger generation”; “protect the community.”
This is a classic example of “All politics is local.” It doesn’t matter that other people will get those jobs, even if somewhere else. Or that the manufacturer will become more efficient and competitive; that she’ll then be able to sell more lighting products, resulting in growth and more jobs—somewhere. Or that the new products will be far better for the environment. Or that, when a province (including yours) needs to build more schools or hospitals, the manufacturer will be able to supply less expensive, higher quality lighting—thus saving taxpayer money.

Sadly, no. In local politics, there is no room for the larger public good, and only rarely is there room for long-term thinking. Other communities be damned. Future prosperity be damned. Immediate self-interest, even if short-sighted, trumps all. And heartstring-pulling stories make for more interesting news for the media. The combined effect encourages politicians to react accordingly.
The irony is that the best interests of the community as a whole are usually better served by not engaging in protectionism, because it does nothing to ‘protect’ longer-term economic prosperity. Lowering trade barriers and increasing trade flows are actually still better for most communities. Positive effects include greater competition, lower prices for consumers, lower input prices for manufacturers and assemblers, better products, greater productivity, more growth and, yes, more jobs—but these positives are diffuse, spread around to many people. Free trade is better for the majority, but the positive effects don’t make for easy, emotion-stirring sound-bites. The concept of greater prosperity for the whole is harder to visualize or articulate in simple terms, but is no less real.
Canada is a trading nation. It started with furs, wood, resources, and we still rely more than most countries on trade with others. Perversely, however, but because of local politics, we have more difficulty selling goods and services between and among our own provinces and territories than we do to and from the United States. More than twenty years ago, we established what is called the Agreement on Internal Trade (ait). Yet beer, wine, transportation, energy, labour, construction, government procurement—all are affected by barriers of one sort or another.
But just this July, the members of the Council of the Federation (Canada’s provincial and territorial premiers) emerged at the end of their gathering in Whitehorse and announce, with no small amount of fanfare, an “historic”, “ground-breaking” “agreement” on opening internal trade. They even gave it an ambitious name, the Canadian Free Trade Agreement (cfta).
All of which sounds positive, except for one problem: there is no agreement, there are no details—for all the noise, all we got was a short press-release-geared statement about an agreement-in-principle. And recalling that over the years, prior sets of premiers have made similar announcements but to no real effect, one is left with something of a boy-crying-wolf feeling about this announcement. The words “historic”, “ground-breaking” and even “agreement” sound very positive—certainly for the politicians—but they are entirely hypothetical without an actual, detailed agreement and a strong enforcement mechanism to keep the parties in line.
There may, however, be some light: We are told that the cfta will take a “negative list” approach. This is a good start. This would mean that trade in all goods and services would be open between the provinces and territories, except for those items or areas of commerce that are specifically exempted or excluded. The success—or failure—of the cfta will depend entirely on how little—or how much—the premiers exclude or exempt.
Worryingly, we are already being told that the provinces will still be able to create exemptions to maintain barriers, or create programs, that are meant to “assist local businesses.” (Remember, all politics is local.)
This could mean that, despite all of those words, nothing will change. The devil will be in the details—and that only if the premiers and the ministers ever get around to them. No timeline has even been suggested.

A critical question in all of this, particularly when the provinces and territories have such a poor track record on trade, is where is the federal government? Internal trade barriers created by the provinces and the territories are contrary to Canada’s Constitution. It couldn’t be clearer. Section 91 of the Constitution Act, under Distribution of Legislative Powers, says that the exclusive legislative authority of the Parliament of Canada extends to the Regulation of Trade and Commerce.
Yet the feds weren’t even at the table when the premiers hashed out their idea of the cfta. Encouraging greater efficiency, greater competitiveness, greater prosperity across the whole country is part of the federal government’s job.
The Canadian government not only should do, but must do what is best for the whole of Canada. The provinces and territories are not the ones on whom we can rely to look after the national interest; not when they have to deal with their respective local political pressures. With a majority government at the federal level, the opportunity is now. It will not be easy. But tough decisions and tough actions are needed to start forcing the premiers to realize that this cannot be left only to them. If no concrete results with the cfta are seen, and soon, the federal government should finally step in and enforce its own Constitution.
So how do we get politicians to actually make this happen?
Recognizing the political dynamics, particularly those of local politics, we need to change the public discourse so as to have more people understand why it is in our self-interest to move toward freer trade, and away from the easy but false language of “protectionism.” Nationalistic language of “We should do this for the country as a whole” will not work. Nor will hoping for some vague sense of patriotic selflessness. It is hard for a province (more precisely its politicians), to open up, for example, construction opportunities to companies from outside the province, in the face of vocal local opposition, simply because of some feel-good idea about Canada as a whole. Each province and territory should do so because it is in the best economic interests of its own people.
Protectionism takes from society as a whole, including those least able to afford it, and gives to a few. No one begrudges anyone a livelihood, yet study after study has shown that the cost to taxpayers of protecting or subsidizing jobs is always a multiple—sometimes a very large multiple—of the wages of the workers thus protected or subsidized. And “protection” by one province will only encourage other provinces to “protect” their own. What we end up “protecting” is inefficiency, uncompetitiveness, lower growth and, ultimately, and most ironically, unemployment.
But in the world of local politics, particularly local politics, the heartstring-pulling potential is still heavily slanted to the negative effects on the few. This is not to seem heartless—the pain is very real for those going through it. We need more effective ways to help people who lose jobs with transition in terms of skills and mobility to where other jobs are. But the fact that we don’t do a good enough job in those respects is no reason to make bad decisions elsewhere.
Taxpayers, consumers, businesses—voters—should be loudly calling on their governments to obtain, and to ensure that their enterprises and consumers can obtain, the best infrastructure, goods, and services at the best prices, regardless of the source. We need to change the message at the local level.
Finally, we need to put more pressure on the federal government to start taking an active role. Diplomacy and encouraging words are good, but only if they work. If we do not see progress toward more open internal trade, and soon, the federal government should have the courage to intervene as the law permits—indeed, requires—it to do.
After all, our politicians are entrusted with a responsibility to do what’s best for the whole, not just a few, and we must hold them accountable for fulfilling that responsibility.
Martha Hall Findlay is an executive fellow at the School of Public Policy, University of Calgary, and a former member of parliament.

What's New

Trans Mountain and beyond: How we can improve confidence in the regulatory process

Read it in The Globe and Mail here.

Jennifer Winter is director of energy and environment policy at the School of Public Policy, University of Calgary. Martha Hall Findlay is executive fellow in the School of Public Policy, University of Calgary and chair of the advisory council for the Positive Energy Project, University of Ottawa.

You bought the lot, your house plans are ready, they comply with all applicable bylaws and construction code requirements, and you have all of the necessary permits in hand. Indeed, you’re proud of the expected energy-efficiency of your home, maximizing solar heat by using glass walls all along the east, south and west sides. Yet, just as you are about to start digging the foundation, a group of people arrive on the street and block the bulldozer, carrying “Save the Birds” signs. They claim that an inordinate number of birds will die from flying into the glass.

You call your municipal councillor, asking her to have the city enforce your right to start building – but she and her colleagues have been receiving calls all week from the protesters. They have decided not to enforce your right to build according to your building permit because, they say, you don’t have the “social licence” to proceed.

There are – or were – no rules against glass walls. Does this involve all of your neighbours-to-be, or a small number of avid, vocal, bird protectors? You might very well ask who is deciding the scope of this additional level of “permit”, and how to obtain it – or even if it is attainable at all. You wonder if there will be similar protests if you decide to replace the glass with bright green siding.

The National Energy Board has just recommended that the Kinder Morgan Trans Mountain pipeline expansion proceed, but with 157 conditions. But will it go ahead? Not long ago, a regulatory decision such as this one would be followed, and government authorities would enforce it. But then, Northern Gateway happened. Just two years ago, the NEB recommended that the Northern Gateway project proceed (in that case subject to 209 conditions), but almost immediately, various political leaders said that they would not support it, claiming that the project had not obtained “the necessary social licence.” It remains unclear whether it will now ever proceed – and it remains to be seen if a similar fate awaits the Trans Mountain expansion.

The scope of the challenge facing major energy infrastructure projects, from pipelines to wind farms to dams, is much larger than a personal home. So too are the economic, environmental and political consequences. Yet the questions are the same: What is “social licence”? Who decides what “it” is? Who decides who “gets” it and who doesn’t? How do we provide the certainty needed for investment? If, after the official regulatory process has been complied with and approvals given, but a project still cannot proceed because of such an elusive concept, does it mean that the regulatory process itself is broken?

No, not quite, according to a white paper just published by the University of Calgary’s School of Public Policy, the result of a year-long, cross-country and interdisciplinary collaboration. It includes a comprehensive look at the concepts of public acceptance and social licence, and analyzes the history and meaning of the terms and related concepts. Most importantly, the authors use this research to provide concrete suggestions for improving, and improving public confidence in, Canada’s various energy-related regulatory processes.

These recommendations include:

• Greater co-ordination of regulatory processes between the federal and provincial governments.

• A consistent, transparent and rigorous system for identifying and reaching out to stakeholders.

• Care in using vague terms such as “social licence”, if at all.

• Ownership by the federal and provincial governments, not the private sector alone, of the duty to consult with First Nations.

• An independent review of the National Energy Board Act and its regulations to determine the stakeholders who should be consulted, and how, and provide for appropriate time, and processes, to do so thoroughly.

• Broader use of information gained during assessment processes, including mechanisms to report recurring concerns that are outside of the scope of any particular regulator’s mandate.

• Public availability of timely and relevant data relating to the compliance and postapproval status of projects, including posting data on a government portal to increase accessibility for stakeholders.

• Providing for a level of cross-examination in regulatory hearings that is proportionate to the magnitude of the impacts of the ultimate decision.

The federal government has promised to amend the regulatory process for major energy projects. This research and these recommendations should help inform how to best fulfill its mandate. All stakeholders need to be able to rely on a properly functioning and efficient regulatory process, and then be confident that decisions will be supported. However, if there is a lack of public confidence in the objectivity and thoroughness of a process, there will be doubt about the resulting decisions. Everyone benefits from greater confidence in the process itself.

Jennifer Winter and Martha Hall Findlay are two of the nine co-authors of the white paper referred to here.

 

The Economy, What's New

Railways and Pipelines – the Constitution Hasn’t Changed

You can also read it here.

March 25, 2016 – for The Globe and Mail

Martha Hall Findlay

Executive Fellow, The School of Public Policy, University of Calgary

 

If we started today, there’s a good chance Canada would never get off the ground.

Our history is unique: Just like south of the border, we started with great wide expanses. Different paths gave us the United Kingdom’s parliamentary system, but then, given our vast geography, we integrated it with a unique version of a de-centralized, federation – a unique solution to the challenges of creating, and then governing, a unique country.

By and large, it has worked pretty well.

Roy MacGregor, that superb observer and reporter on all things Canadian, compared Canada to a bumblebee. By all rights the creature, given its outsized body and tiny wings, shouldn’t be able to fly — but it does. Canada is big, and spread out, and in the early years the idea of all of the parts being one country seemed, if not impossible, awfully unlikely.

But it flew.

It did so because people of courage were willing to compromise and invest – both politically and financially – for the greater good. They created our Constitution, which unites us politically, and built the railways that transported goods, products and people from one part of the country to other parts of the country, often to go on to global markets. The original four provinces in fact made the completion of the Intercolonial Railway by the federal government a condition – a requirement – of signing the deal. Grain, wood, fish, minerals, livestock – without the ability to transport the fruits of our natural resources across the country, we wouldn’t be the successful country we are today.

That understanding of Canadian history and of the Constitution (or the political courage needed to uphold it) seems to be evaporating. We are forgetting not just how the Constitution works, but a fundamental ingredient of Canada’s success: the need, sometimes, for compromise on local or special interests for the greater national good. Rather than building our nation, we are in the process of, dangerously, dividing it – and in doing so, losing altitude and hitting ground.

Imagine trying to build a railway today – it wouldn’t stand a chance. If municipal mayors feel that they can prevent a pipeline being built because it is “too risky”, imagine what they would do, now, about a railway. Imagine if politicians in Ontario refused to allow track to be laid crossing Ontario, because transporting grain from the prairies to Montreal or St. John for export was of “no benefit” to Ontario.

What about the Trans-Canada Highway? Imagine if the building of that national link – or any road for that matter – were contingent on proving that it did not contribute to greenhouse gas emissions. Given that 20% of all of Canada’s GHGs come from driving cars and trucks, it wouldn’t stand a chance either.

The founding fathers drafted the Constitution the way they did because they understood the local pressures faced by politicians – and the temptation to succumb to them. Section 91 sets out all of the federal Parliament’s powers; Section 92 sets out all of the provincial powers — but specifically reserves to the federal Parliament key jurisdiction over shipping lines, railways, canals, telegraphs and other works or undertakings (including, today, pipelines) that connect one province with any other province(s), or beyond. It also gives the federal Parliament the right to declare any work, even though “wholly situate within” a province, to be for the general advantage of Canada or of two or more provinces – and thus under federal jurisdiction. This ‘declaratory power’ has been invoked more than 400 times since 1867.

The system has worked well for Canada – but only because we have upheld it.

Despite declarations by some politicians, and headlines provided by various polls, municipal and provincial governments do not, under the Constitution, have the power to block pipelines. Of course they have the right to raise local concerns – and other provinces, as well as the federal government, need to listen, understand and yes, sometimes everyone needs to compromise. But no development is risk free. Whether it is a railway, a highway, or a pipeline, one must analyse and balance the costs and the benefits (including probabilities of any risk). Collectively, we need to ensure best practices in terms of safety and the environment, including prevention, mitigation and the like. But in the end, the federal government must decide.

The right things are being said. Both the Prime Minister and the Minister of Natural Resources have acknowledged the need to get Canada’s oil to tidewater. But action is needed, and soon.

The Economy, What's New

When the automobile came along, nobody bailed out Ravenna

You can also read it at the Globe and Mail here.

February 27, 2016

Martha Hall Findlay

Executive Fellow, The School of Public Policy, University of Calgary

Ravenna is 12 km inland from the southern shore of Georgian Bay, up the side of the Beaver Valley, in the rolling farmland of Southern Ontario. If you blink as you hit the intersection of Grey County Roads 2 and 119, you will miss it, because today, Ravenna is barely a sign and an intersection of two rural roads.

Yet once upon a time, Ravenna was a bustling community, with 2 hotels, a blacksmith, stables, a feed store, a general store. Ravenna existed because it was pretty much halfway between Barrie and Owen Sound by horse and buggy. But then someone had the nerve to invent a new-fangled thing called an automobile. Soon, nobody needed the hotels, the stables or the blacksmith. The local farmers could get more of what they needed in the larger towns of Thornbury, Clarksburg and Collingwood, so the feed store and general store were closed too. It certainly wasn’t the fault of the folks from Ravenna – but their world had changed.

Why tell this story? Because the same thing is happening all around us today. Technological changes allow supply and demand chains to change. They allow opportunities for people to work in new and different sectors and places. They can also reduce demand for certain products and services, and reduce demand for various skills and labour in previously busy industries. But a major part of the history and economic success of Canada – of North America – has been one of internal migration, as people adapted and moved to where the opportunities were.

Unfortunately, our memories are all too short. These days, each time there is a disruption, a technological change, a shift in demand for products, services or for labour, the default reaction is to expect governments to step in to maintain the status quo. “We need help to keep our young people here.” “We can’t let this town die.” “The government must support this industry.” “We need to protect the family farm.” In most cases, that is exactly what the government should not do.

Let’s go back to little Ravenna. Should the government of the day have stepped in and artificially kept those two hotels open? Should it have given public money to the blacksmith with which to keep his employees paid, even if there was nothing left for them to do? Should it have given the general store a bail-out, in the hopes that somehow it could generate sales again? Of course not. Ravenna was a lovely place to live and call home, but not when doing so was no longer sustainable. When did we develop the notion that one has the right to stay ‘home’ even if there is no longer any work there, or the right to continue working at the same job if there is no longer sufficient demand for it, all at the expense of other taxpayers?

A more recent example: It is not the fault of the Toronto, Montreal or Calgary taxi drivers that their regulated (and protected) system is being disrupted by Uber’s innovative and popular service which new technology has now made possible. Yet trying to prevent or deny access to new and innovative products or services for which there is great demand, while artificially maintaining less effective and less efficient alternatives, makes no sense.

The good people of Ravenna, like so many people in our history, moved homes, found new work and started new lives, all on their own, without public assistance. But changing jobs, changing skill sets, even more so uprooting and changing homes, can all be difficult for people and their families. We want to be compassionate, and our society can afford to be. Publicly-funded support for people in need as they transition to other jobs and/or other places is not only compassionate, it makes sense economically — but only if it assists people through transition to something else, not to protect an unsustainable status quo. This type of support could include money for moving if needed, for income bridging, for training for different occupations that are more in demand elsewhere, and perhaps even easier access to start-up capital for new businesses. (A good number of people who lost their jobs during the major 1980s oil patch downturn started what became successful enterprises.)

It is unrealistic (and irresponsible) to expect government to use public money to artificially support a town, an industry or an individual company if the need for that town no longer exists, if there is no longer demand for what that industry produces, or if a company, for reasons of bad management or otherwise, cannot sustainably supply what demand there is for its products or services.

No one would argue that government should have artificially kept those two hotels open in Ravenna.

 

What's New

Foreign Investment – Time For Clarity

You can also read it at the Globe and Mail here.

February 16, 2016 – for The Globe and Mail

Martha Hall Findlay

Executive Fellow, The School of Public Policy, University of Calgary

The federal government has changed, but certain economic fundamentals haven not. Canada relies on trade and depends significantly on foreign investment. Being open to trade and investment has been fundamental to Canada’s historical success – it is key to our future success as well.

Foreign investors require stability and certainty. Canada does well in terms of both political and economic stability, but after a decade of inconsistent decisions, lack of clear criteria, mixed messages to the global investment community, inability to move forward with indigenous communities and, more recently, political leaders disregarding our own regulatory decisions, we are building a unique reputation for uncertainty.

Ottawa’s refusal in 2010 to allow Australia’s BHP Billiton’s purchase of PotashCorp surprised many. The decision was seen as political, and the ripples were felt throughout the global investment community. In 2012, Canada approved the acquisition of Nexen by China’s CNOOC, only to immediately, and confusingly, impose rules preventing other similar investments. Canada made flip-flopping decisions on foreign investment in the telecom sector as well: In 2009 it actively supported the investment by Orascom in Wind Mobile (to the point of Cabinet overruling the CRTC with respect to foreign ownership rules) – yet subsequently refused (on undisclosed national security grounds) to allow Accelero, controlled by the same interests as Orascom, to acquire MTS Allstream. The decision was a surprise, not because of the importance of national security issues, but because Canada had so recently been so welcoming to investment by the same interests, in the same sector.

Now, with a new government, Canada has an opportunity to clear up its reputation. The Prime Minister is saying that “Canada is open for business”. While in opposition, those now in power called for clearer criteria, with clear rules of engagement, applied consistently. Yet by our actions, we’re not off to a great start.

Last month the very same Allstream that, only recently, was not allowed to be sold to foreign interests for ‘national security reasons’, was sold to US company Zayo. This time, however, we didn’t even engage in a national security review. This is not to say that we should have said yes or no – the point is that two almost opposite approaches to the acquisition by foreign interests of exactly the same asset leaves potential investors wondering how Canada will treat the next one.

Now we have another problem. An increasing number of politicians have refused to enforce regulatory decisions; in some cases they have publicly denounced them. Canada’s regulatory processes can always be improved, but they have been developed over the years as a fundamental part of our democratic system – a key element of which is removing important decisions from political influence. It is one of the reasons our regulatory processes are respected around the world. When we let politics trump decisions reached by way of those regulatory processes, we tell the world that we are unreliable.

Unfortunately, this was reinforced last week by Minister of Natural Resources Jim Carr.

Minister Carr, to his credit, understands – indeed refers to, often – the need for Canada to get its oil and gas resources to tidewater sustainably. He is engaged in an effort to improve the way the National Energy Board operates, “to increase Canadians’ trust in the process”. These are positive efforts, and an example of how our system is able to, and does, adapt to changing public requirements. It is critical to have an impartial system that examines the key economic, environmental and community issues thoroughly, and based on that analysis makes decisions that advance the public good. Improvements to enhance the public trust in the process are important, and welcome. However, when pressed as to whether, once the process is improved, the Canadian government would enforce those decisions, Minister Carr bluntly called the process “political” and said that, once the new-and-improved regulator makes a decision, Cabinet will then embark on “its own consultations” – and only then decide whether to proceed or not.

Why improve the regulatory process, which we rely on to remove these decisions from the realm of political whim, if we still let politics trump it all?

With a relatively small domestic capital market, Canada needs to look abroad for additional capital to help fund the building, creating and developing that are essential to our continued prosperity and growth. But investors need certainty. No one expects Canada to simply fling its doors open. We are right to require that investors comply with Canadian rules, and everyone understands that any country has the right to protect its national security. But we need clearer criteria and a commitment to abide by them. Investors need to know (and be able to count on) the rules of engagement. Otherwise, as they are increasingly doing, they will go elsewhere.

 

 

 

International Trade and Investment, The Economy, What's New

Financial Post: Foreign investors need clarity

Foreign direct investment is like a pipeline of energy (pun intended) into the Canadian economy. According to the International Monetary Fund, FDI benefits small open economies like Canada by allowing owners of capital to diversify their lending and investment, thereby reducing their risks and costs of finance. In the shorter run, it generates tax revenues and…</style>//d2uzdrx7k4koxz.cloudfront.net/user/view.act?fuid=MjA2Mzg2NDg=&showDate=true//d2uzdrx7k4koxz.cloudfront.net/user/js/rh.js

 

Supply Management, The Economy, What's New

National Post: Jen Gerson: There is at least one major flaw with the TPP: It doesn’t kill supply management

 If there is one reason above all others to hesitate in voting for the NDP, it’s the party’s inbred aversion to free trade. As the NDP tries to shore up its left flank in the face of drooping poll numbers, this habit was on full display as the 12 countries, including Canada, inked the Trans-Pacific Partnership.… Continue reading
What's New

Here’s Canada’s way forward on supply management

MARTHA HALL FINDLAY AND JACK MINTZ

The Globe and Mail

Published Wednesday, Jun. 10, 2015 3:00AM EDT

Read the online edition here.

 

Peter Power-The Globe and Mail

The trade spat has been a two-way street as the U.S. has recently complained about Canada’s highly protected dairy industry.  (Peter Power/The Globe and Mail)

Martha Hall Findlay is executive fellow and Jack Mintz is director and Palmer chair at the School of Public Policy, University of Calgary.

 

Much has been written about supply management of Canadian dairy, poultry and egg production, the system that artificially supports a tiny consortium – barely 6 per cent of our country’s farmers – by fixing prices, imposing high tariffs and controlling production by way of quotas. The small number of farmers who remain do very well, but at a significant cost to virtually every Canadian, through high consumer food prices, lost processing jobs and reduced export opportunities due to trade barriers.

The good news is that there is a win-win solution, one that uses part of the system itself.

First, reform must treat the farmers fairly with adequate compensation and transition assistance. Canadian winegrowers had help in moving to free trade with the United States; so did tobacco farmers in moving to different crops. But in a time of zero tolerance for tax increases, where will this money come from?

The answer lies in using part of the system itself to raise the funds. Australia successfully dismantled its own supply management system more than a decade ago. At no cost to government, its reforms provided compensation and transition assistance to dairy farmers while still benefiting consumers. Compensation and transition payments were funded by maintaining and collecting a small portion of the system’s existing price supports for a limited period of time. Some farmers cashed out for a decent retirement; those who stayed in the business became more efficient and more productive. Consumers immediately paid less for dairy products – and then less still at the end of the transition period.

Although Canada has its own complications, we can do the same here. But price-fixing, tariffs and production quotas are like three legs of a stool – you can’t just take one away. You need a solution that deals with all three simultaneously.

First, tariffs must be removed, all at once, so that Canada can immediately participate in robust, international trade deals, including the Trans-Pacific Partnership. A more gradual approach would also delay Canadian farmers’ ability to begin exporting, and allow competitors from Australia, New Zealand and the United States to secure and consolidate their export-market shares. However, once the tariffs are removed, the price received by our farmers will drop to U.S. price levels, and the value of quota will disappear – hence the need for immediate compensation and transition assistance.

Before dropping the tariffs, therefore, we must determine the amount needed to compensate farmers for their quota and for transition assistance. It is critical that farmers be a part of this process. Let’s call it the Fairness for Farmers Fund.

The big question is how to value quota. Some suggest using full market value, currently about $23-billion for all of dairy, based on current average quota value of about $30,000 a cow. Yet many farmers were allocated quota for free or at little cost decades ago, whereas new entrants have paid dearly. The Conference Board of Canada has suggested using book value, which it estimates for dairy as being somewhere between $3.6-billion and $4.7-billion. The actual number would likely be somewhere in between, to address historical differences, interfamily transfers, use of quota as collateral for borrowing and other factors.

Either way, the fund would be large, but it could be paid for over time, using the mechanics of the price-support system.

For dairy, the system would maintain a small price supplement per litre on retail sales (the Transition Price Supplement, or TPS), but only for a limited transition period, paid at retail into the fund. (In order to pay compensation immediately, governments would borrow against the TPS to be collected over the transition period.)

For consumers to benefit immediately, the TPS must be low enough that the retail price (the transition price) is still lower than current supply managed prices. The lower the TPS, the longer the transition period – and the higher the TPS, the shorter the transition period.

In Australia, the milk-price supplement was just 11 cents a litre, for eight years. Nearly three billion litres of fluid milk are consumed annually in Canada; if the fund totalled $5-billion (for dairy), the TPS would need to be just 17 cents a litre if spread over 10 years. If the fund were $15-billion, the TPS would be 50 cents a litre over 10 years – or 25 cents a litre, if we chose to spread it out over 20 years. (Remember that this supplement would be on the new, lower, non-supply-managed milk prices.)

In 2012, when the U.S. and Canadian dollars were on par, the average Canadian retail price for four litres of milk was $6.48, or $1.62 a litre. In the United States, the average retail price for a gallon (3.8 litres) of milk was $3.50 – $0.92 a litre. As soon as tariffs are eliminated, the Canadian retail price would drop to compete with U.S. prices, likely below $1 a litre. Even with an additional 25-cent supplement per litre, the price to consumers would still be significantly lower than it was under supply management. (In April, 2015, although in a different exchange environment, prices were $0.89 U.S. a litre and $1.68 Canadian.)

At the end of the transition period, the TPS would be removed and consumers and processors would then reap the full benefits of the even lower North American price for milk.

Right away, consumers would pay less for basic, important nutrition. Farmers would be immediately and appropriately compensated and assisted in transition. Some would take advantage and retire comfortably, while the efficient, growth-oriented farmers who remained would consolidate, make more efficient use of their capital and expand with exports to what are now rapidly growing markets.

Finally, Canada would be able to go to trade talks – including the TPP – with clean hands, unencumbered by supply management and ready to benefit from global opportunities.