Saturday, December 22, 2007

PM Announces Canada’s New Food and Consumer Safety Action Plan

Prime Minister Stephen Harper last week announced the Food and Consumer Safety Action Plan, a comprehensive set of proposed new measures that will make Canadians safer by legislating tougher federal government regulation of food, health, and consumer products.

Speaking at the Salvation Army Christmas Toy Depot in Ottawa, Prime Minister Harper noted that there has been a sharp rise in the number of product recalls involving unsafe toys, food and drugs in recent years. “Canadians rightly expect their federal government to police the safety of the products they bring into their homes,” the Prime Minister said. “Today, I’m pleased to announce a plan that will significantly enhance our ability to do just that.”

The proposed legislation, to be introduced in the New Year, will transform the government’s approach to regulating product safety. For the first time in Canada, instead of merely reacting to problems, the regulations will be designed to prevent them. New measures will include:

• Mandatory product recalls when companies fail to act on legitimate safety concerns.

• Making importers responsible for the safety of goods they bring into Canada.

• Increasing maximum fines under the Food and Drug Act from $5,000 up to current international standards.

• Better safety information for consumers and guidance to industries on building safety throughout their supply chains.

“The Food and Product Safety Action Plan delivers on our Government’s commitment to building a stronger, safer, better Canada,” said Prime Minister Harper. “This plan will benefit all Canadians: it will improve our safety and health, reward responsible industry players, and enhance Canada’s reputation abroad as a country whose product safety standards are second to none.”

The Government will begin engaging consumer and industry stakeholders on how best to proceed with the Food and Consumer Safety Action Plan in the New Year.

Surprise of the Year: Deflation Dissipation

(Stephen Poloz — Export Development Canada)

Each year, just before the holidays, we take a look back and recall the surprises that took place in the previous 12 months. 2007 was loaded with candidates.

Start with the world economy. We began the year with the world in decent shape, but concerned that the U.S. housing sector could surprise on the downside. Downside surprise indeed! Despite repeated reassurances from policymakers, the U.S. housing sector went into a meltdown and there is no evidence to suggest that it is over. The erosion of consumer confidence is affecting the rest of the economy, and economists are now open to the possibility of a U.S. recession.

As the year unfolded, many predicted that the rest of the world would decouple from the U.S. economy. Surprise again! The decline in the U.S. dollar over the year boosted U.S. exports and reduced U.S. imports, thereby directly spreading the U.S. slowdown to the rest of the world. Plus, the credit crunch that emerged in August – spawned by the U.S. housing meltdown, but surprising in its severity – immediately went international, and its effects are still growing today.

Slower economic growth generally leads to lower inflation. Besides, in recent years the world has been cushioned from inflation pressures by deflation in goods exported from China. Surprise again! Inflation is back on the policy radar screen. Oil is above $90 per barrel, wheat at $10 per bushel. The quality of some of China’s exports has come into question, leading many consumers to begin a switch to higher-priced alternatives. Plus, the growing awareness of global warming, supported by Al Gore’s receipt of the Nobel Peace Prize, will gradually embed environmental costs into consumer prices – thereby potentially creating a modest uptrend in global inflation.

It is tempting to blame political risk for high oil prices, which boosted the demand for bio-fuels, thereby pushing up food prices. Yet, factor in the surprising U.S. intelligence flip-flop Iran’s nuclear program, plus the apparent political shift in Venezuela, and the prices of commodities really do look surprisingly high. Although higher prices like these do not constitute inflation per se, consumers can’t tell the difference. Nor do they care whether the Canadian dollar shot above the U.S. dollar because of high commodity prices or pure speculation – the only unsurprising part of the dollar story was the brevity of its surge. In the end, it averaged about 93 cents in 2007.

And then, attentive readers will recall our surprise of the year in 2005 – the $39 DVD player – which then fell to $28 in 2006, prompting us to boldly forecast that DVD players could be free by Christmas 2009. Even this story, however, supports the deflation dissipation theme – a visit to our local rock-bottom retailer this Christmas found, surprisingly, the same $28 price point as last year.

The bottom line? These surprises underscore the massive contrasting tensions – between slowing economic growth and awakening inflation potential – being balanced by global financial markets today. 2007 was financially volatile, but don’t be surprised if 2008 is even more so.

Thursday, December 20, 2007

U.S. Legislators Renew Push to Delay Passports at Canadian Border

American legislators are renewing their push to delay requiring passports at the Canada-U.S. border until June 2009 by slipping the measure into a critical spending bill.

But the Homeland Security Department says it's determined to move forward with the new security requirement next summer as planned, regardless of how Congress votes. The U.S. House of Representatives approved the $516-billion measure funding 14 cabinet agencies and troops in Afghanistan, setting the stage for a year-end budget deal with the White House.

President George W. Bush has signaled he'll ultimately sign the measure – assuming up to $40 billion more is provided by the Senate for the Iraq war – despite opposition from Republican conservatives. In an unusual two-step, legislators first voted 253-154 to approve the omnibus spending bill; they then voted 206-201 to add $31 billion for troops in Afghanistan to the measure. The combined $516-billion spending package is set for Senate debate on Tuesday. Canada has long supported a delay in the passport requirement to ensure the security system is properly in place, avoiding nightmarish traffic lineups and long wait times for passports.

The extra time was written into the House bill by New York Democrat Louise Slaughter. She included a provision for withholding $75 million to implement the plan until officials report on the status of new identification cards and high-technology driver's licenses that are being developed as alternatives to passports.

“The traffic across our northern border is critical to our economy and we must never sacrifice our relationship with Canada with an ill-conceived attempt to increase border security,” said Slaughter. “Economic security and physical security are not mutually exclusive. We can, and must, have both.”

But Homeland Security spokesman Russ Knocke said he doesn't believe the stalling measure will impede plans to implement the so-called Western Hemisphere and Travel Initiative at land and sea crossing starting next summer. “A delay in WHTI implementation would create the very type of chaos at the border that Congress has repeatedly urged our department to avoid,” Knocke said.

Canadian Embassy officials called the latest move on passports “a very positive step.” Ambassador Michael Wilson has been lobbying for more time for more than a year. “On the present timetable, Canadians and Americans do not have time to get the documents they will need,” Wilson said in an editorial published last week in the Seattle Post-Intelligencer.

“Neither country can afford the kind of backlog that both passport agencies experienced last winter when the new ... requirements were implemented for air travellers.Many more travellers cross by land and there needs to be a realistic and transparent plan to ensure that legitimate tourism and trade can continue."

Wait times for passports were up to 12 weeks, from four to six weeks, in the United States before air passengers were required to use the documents in January.

The land and sea portion of the rule has already been delayed once to give U.S. officials more time to develop a passcard dubbed “passport lite” that will be cheaper to get. Several states and some provinces are interested in developing enhanced driver's licences that will contain proof of citizenship like passports. Last week, Homeland Secretary Michael Chertoff called the high-technology licences a “win-win for security and convenience.”

Starting Jan. 31, the United States will require all Canadians to provide some proof of citizenship, like a birth certificate. Adults will also need a government-issued photo ID. Customs agents will no longer be allowed to simply ask people where they were born.

Tuesday, December 18, 2007

Labour Shortages Are Global

(Stephen Poloz, Export Development Canada)

We hear about labour shortages a lot – there are not enough doctors, carpenters, plumbers, or skilled workers in general (except, perhaps, economists). This is becoming a global problem.

Economists will tell you that labour shortages are not supposed to happen. When something is in short supply, excess demand pushes the price up. This reduces demand and increases supply. When it comes to skilled labour, the supply response is by necessity gradual, and may be very difficult, since it requires education and, perhaps re-education of transitioning workers.

Perhaps the bigger problem is that global population growth is on the decline. Population growth averaged 2% per year in the 1960s and 1970s and has been easing ever since. Growth was 1.2% for the past five years, and this is projected to fall to as little as 0.4% by the 2040s. Some countries are already experiencing population declines, such as Japan, for example.

This slowdown in labour supply has contributed to declines in unemployment rates to near historical lows in many countries. This has made the workers available in emerging markets look even more attractive. In a country where population growth is very low, then, the choice is clear: either allow more immigration to fuel domestic growth, or grow the economy offshore.

An interesting case study is the Czech Republic, where the population has been in decline since the mid-1990s. The share of the population that is over 65 is now 20%, and it is expected to rise to over 30% by 2020. This is much worse than the world situation, where old-age dependency is presently around 10%, and will only rise to about 14% by 2020.

As a consequence, Czech companies no longer talk about the shortage of skilled people, they talk instead about the shortage of people, period. They are willing to do all necessary training themselves. They have gone on recruiting missions to such places as Vietnam or Belarus but are finding that channel of growth to be very costly and difficult to plan.

The solution? Grow the company without labour force growth. That means increasing automation in domestic plants, relying on only the most skilled workers, and expanding the business in other countries. A global production structure, facilitated by international trade, is the quickest route to higher productivity growth, as experience in the U.S. illustrates. That’s why global cross-border investment has been growing by some 30% per year in the last 3-4 years, and why a country like the Czech Republic can see inbound investment growing by 42% per year. Outbound investment is growing even more rapidly, albeit from a lower starting point. And policymakers are catching on: CzechInvest, the government agency traditionally tasked with attracting investment to the Czech Republic, is now in the business of helping Czech companies invest abroad as well.

The bottom line? Population trends are yet one more force fuelling globalization. Even countries with a positive mix of population growth and immigration are likely to see steady upgrading of domestic skills and the increasing use of offshore structures to cope with labour shortages.

Small Firms Fail to See Benefits of Joining C-TPAT

(American Shipper via CSCB)

Many small and medium-size importers fail to see the value of joining the U.S. government’s Customs-Trade Partnership Against Terrorism (C-TPAT) program.

According to a recent survey by Trade Bridge International, an industry association for small to medium-size companies, about 55 percent of firms with less than 500 employees could not determine the benefits of participating in C-TPAT.

Trade Bridge sent its 10-question survey to about 8,000 individual e-mails and received back more than 100 responses for a “snapshot” of how SMEs feel about C-TPAT, said the organization’s secretary general Leslie L. August to attendees of a World Customs Organization meeting in Brussels Tuesday.

The survey also found that 37 percent of companies cited either lack of time or money, or both, to devote to applying for C-TPAT status. More than 50 percent of those firms surveyed said they were either never invited by CBP or their customs brokers to become C-TPAT participants.

CBP has published a C-TPAT cost-benefit analysis on its Web site, but the Trade Bridge survey found that more than 80 percent of SMEs have not read it.

August said that to increase small importer participation in C-TPAT, CBP and the brokers must do a better job with communication and outreach about the program.

Mike Laden, president of customs and trade consultancy of the Trusted Trade Alliance, said a setback for C-TPAT, which now includes an enrollment of more than 7,800 importers, carriers, terminal operators, customs brokers and freight forwarder/consolidators, has been CBP’s failure to establish a “bright line” between the C-TPAT members and those who do not participate. Laden said that his firm’s research found no appreciable increase in cargo inspections for non-C-TPAT members versus those firms in the program.

“There should be a 50 percent increase in the exam rate” for non-C-TPAT firms, he said. CBP should take a “harder line” with the program to separate the “known from the unknown” in the supply chain, Laden added.

Monday, December 17, 2007

What’s the Buzz about International Trade Data System?

(U.S. Customs and Border Protection)

Recent legislation and growing interest from within the government has created a buzz about the International Trade Data System (ITDS), resulting in greater visibility throughout the government and increased participation by federal agencies. ITDS is the mechanism for coordinating intergovernmental participation in U.S. Customs and Border Protection’s new Automated Commercial Environment trade processing system, known as ACE. In recent months, ITDS has become a key initiative in ongoing efforts to ensure the safety of imported goods and streamline the collection and use of import/export data across all government agencies that share responsibility for import safety.

Momentum began building in 2006 with the passage of the Security and Accountability for Every Port Act, which mandated participation in ITDS by all federal agencies requiring documentation for clearing or licensing the importation or exportation of cargo. With this mandate, nine additional agencies joined ITDS. By requiring use of ITDS, the SAFE port act recognized the ITDS purpose and potential to eliminate redundant information requirements, efficiently regulate the flow of commerce and effectively enforce international laws and regulations by establishing a single web portal for the electronic collection and distribution of standard electronic import and export data required by all federal agencies.

Providing further impetus for ITDS efforts, in July the president issued an executive order establishing an interagency working group on import safety, chaired by the secretary of the Department of Health and Human Services and comprised of senior officials from 12 federal departments and agencies, each with unique and critical import safety responsibilities. Based on the working group’s findings, the Office of Management and Budget reinforced the mandate set forth in the SAFE Port Act on Sept. 28 by requiring use of ITDS when collecting information to clear or license the import or export of cargo. OMB further established an interagency team led by the Department of the Treasury, working with the Department of Homeland Security, to coordinate how each agency will participate in ITDS.

The OMB directive not only reinforced the SAFE Port Act mandate to use ITDS, but also issued a deadline by which agencies must use ITDS. OMB instructed the agencies to develop plans outlining the steps needed to complete each stage of the agencies’ interface with ITDS, including any necessary rulemaking or acquisitions needed to support the interface, by Nov. 12. The OMB directive further stated that by 2009 all agencies are expected to fully utilize ITDS.

Currently, ITDS participating government agencies are moving forward with the steps laid out in their plan and working to complete the interface with ITDS. A total of 40 government agencies are currently participating in the ACE/ITDS initiative. Once fully utilized, ITDS will provide unprecedented interagency coordination and information sharing, ultimately making ACE the “single window” for the collection and dissemination of trade data. The ITDS main page is at

Trade Barriers Estimated to Cost Canada $3B a Year

(Toronto Star via CSCB)

Finance Minister Jim Flaherty said today the provinces should knock down trade barriers between them, which a Senate committee later heard is costing Canada’s economy roughly $3 billion each year.

To do that, Flaherty told reporters outside the House of Commons that Ottawa must help curtail the provincial trade regulations that some argue restrict business and labour and make it harder to compete in global markets.

“There’s certainly a significant role for the national government, the federal government of Canada to play in trying to get rid of these trade barriers,” he said.

Flaherty’s remarks came shortly before a senior Finance Department official told a Senate committee that interprovincial trade rules cost the country about one quarter of one per cent of its gross domestic product.

But Denis Gauthier, the assistant deputy minister of economic development and corporate finance, conceded the department has not recently done any economic modelling to determine the precise cost of the internal trade barriers.

“There’s been so many studies done, and the numbers you’ve heard, you know, between a quarter to three quarters of one per cent of GDP is in the ballpark,” Gauthier said.

“All of the studies point in the same direction,” Flaherty added.

When pressed by Liberal Senator Wilfred Moore, however, Gauthier said the loss stemming from the provincial trade barriers costs the Canadian economy about $3 billion each year.

The provinces have a patchwork quilt of regulations, and companies – some already hard-hit by the loonie’s quick rise to 110.3 cents US last month and gradual decline since – say the different rules make it burdensome to operate in more than one part of the country….

Alberta Premier Ed Stelmach has estimated interprovincial trade issues cost the Canadian economy about $14 billion a year. Alberta is one of a handful of provinces that has signed, or is negotiating, trade deals with its counterparts.

Alberta and British Columbia have a Trade, Investment and Labour Mobility Agreement – also known as TILMA – aimed at removing interprovincial trade barriers. Saskatchewan flirted for months with the idea of joining TILMA, but opted not to in August.

Quebec and Ontario are also looking a similar agreement at would bring into lockstep regulations that govern everything from the weight of trucks to health care, which could boost what’s now about $70 billion a year in interprovincial trade by making it easier for companies to operate in both provinces.

Sunday, December 16, 2007

Back to the 70s: That Was Then, This Is Now

(Stephen Poloz, Export Development Canada)

Those of us with grey hair have noticed that there are a lot of parallels between our current economic situation and that of the 1970s. But there are differences, too, and these are important enough to suggest that things will be different this time.

The similarities with the 1970s are obvious. High prices for oil, gold, base metals, food and fertilizer. A weak U.S. dollar. War, then in Viet Nam, now in Iraq and Afghanistan. Concerns about inflation, combined with worries about recession - the stagflation recipe. Not to mention a fast-growing economy changing the global landscape - then it was Japan, now it is China.

And some of the differences? Start with oil. In the early 1970s, the world used 1.3 barrels of oil per $1,000 of GDP, whereas today it uses 0.8, 40% less. The U.S. has more than halved its oil intensity, from 1.5 barrels to 0.7. And China, forecast by many to exhaust the world’s supply of oil, has seen intensity fall from 4 barrels to 1.3. China is very likely to reduce its oil intensity at least to global levels during the next 10 years, and may go further, as Japan has done. Accordingly, it is folly to extrapolate China’s demand growth as if nothing else is going on, just as it was wrong to extrapolate Japan’s oil demand in 1980.

Same thing for copper. Copper sold for U.S. $6800 per tonne in 1974, and the book “The Limits to Growth” published by the Club of Rome predicted that the world would run out of copper by 1999. Instead, the price had fallen to under $2,000 by 1999, as new supplies and substitutes emerged. Prices are back at 1970s levels again today, and another decline in prices is in store.

The world economy has changed in other important ways, too. Populations of the major economies are a lot older, so they react differently to shocks today, behaving more as investors than as consumers. Economies are more integrated internationally, as trade now represents 60% of global GDP, as opposed to 30-35% in the early 1970s. Economic and financial synchronization is the new paradigm, not decoupling. Even economic theory has changed. Economists’ understanding of inflation and central banking have been advanced dramatically, due in no small part to the experience of the 1970s. Indeed, the 1970s were arguably just as important to economic thinking as the 1930s.

And then there are the usual concerns about war, fiscal deficits and the consequent forecast demise of the U.S. dollar. U.S. defense spending was running at 8% of GDP in the early 1970s, and it was to fall to a low of 3% in 2000. It has risen since then, but only to 4%. But one parallel that is likely to hold up is that today’s calls for the U.S. dollar’s demise are just as premature as those of the 1970s proved to be. The dollar cycles inversely to global business and commodity cycles, and always will.

The bottom line? It’s true, there are a lot of similarities with the 1970s. But that was then, this is now. The 1970s ended in tears, and there is much less reason for this decade to do likewise.

Monday, December 3, 2007

Border Shipping Fees Spark Complaints

(Dana Flavelle — Toronto Star)

Sam Patterson thought he got a good deal when he ordered an MP3 player on the Internet for $160 (U.S.). But when the parcel arrived on his doorstep, the courier company said he owed another $80 (Canadian) in duties, taxes and customs brokerage fees.

“That’s half of what I paid for this thing. That’s ridiculous,” the 50-year-old Toronto film production employee says.

He refused to pay the charges and told the courier company to send the item back to the United States.

Like Patterson, more Canadians are cross-border shopping online now that the Canadian dollar is at par with the U.S. greenback, and a weak U.S. economy is driving retailers to offer big bargains south of the border.

But while some Canadian online shoppers say they’ve scored amazing deals, others say the experience left them cold.

Most of the complaints revolve around unexpected shipping charges for duties, taxes and customs brokerage fees, or wait times for delivery, a growing issue as Christmas Day approaches.

Duties can range from zero to more than 18 per cent, depending on the product and where it’s made, according to the Canada Border Services Agency, the federal agency responsible for assessing duties.

There’s no easy way for the average consumer to figure it out in advance, says Patterson, and few online retailers provide the information for you. “Most websites don’t say on the order page that there could be additional charges.”

The list of import duties listed on Industry Canada’s website is hundreds of pages long. The section governing just shoes, a popular online purchase, and other footwear is 15 pages long.

The federal goods and services tax, at 6 per cent, and provincial sales tax, in Ontario 8 per cent, and any excise tax is added on top of whatever duty is charged.

Then there’s the problem of clearing customs.

Do you pay a private courier service, like UPS Canada, a customs brokerage fee, which can run between $20 and $70, to expedite it for your? Or do you ship through the postal service, which charges a flat $5 fee, but may take longer to deliver? Or do you avoid the fees altogether by making a trip to the customs office in Mississauga?

Two of the biggest complaints about cross-border shipping involve unexpected costs and delivery delays, a growing concern with Christmas deadlines looming.

So many consumers have complained about UPS Canada’s brokerage fees that they have sparked several class-action lawsuits.

In a statement of claim filed by Siskinds LLP in the Ontario Superior Court of Justice last February, the plaintiffs say they weren’t warned in advance there would be extra fees and that the fees charged are excessive.

UPS Canada says it is defending itself against the claim. Its brokerage fees cover the cost of expediting the parcels through Canada Customs, the courier service explains.

“Importing goods into Canada requires the payment of duties and taxes. These fees include PST, GST, duties and other taxes on goods (e.g. excise tax),” UPS Canada said in an email. “UPS Customs Brokerage rates and provides payment to Canada Customs for these fees to expedite clearance at the border on behalf of its importers,” UPS says. “UPS provides a charge for this service.”

The rates for those services are based on the value of the parcels and are outlined on its website, the company also says. They range from a low of zero for parcels worth less than $20 to a high of $69 for items worth more than $1,600.

The Canada Border Services Agency, which is responsible for enforcing the Customs Act, says customs brokerage fees are unregulated and have nothing to do with how the government levies it charges.

Agency spokesperson Patrizia Giolti agrees the fees private courier services charge can vary widely.

“It’s best to shop around.” On the other hand, shipping through the postal system can mean longer waits, she says.

The Consumers Association of Canada says it continues to receive complaints from customers who say their parcels are taking four to six weeks to be delivered.

The problem began as the Canadian dollar reached par with its U.S. counterpart, the association says.

Canada Post spokesperson François Legault says it has worked closely with the border services agency to process additional volumes. Asked about Christmas delivery deadlines, he recommends ordering as soon as possible.

Saturday, December 1, 2007

Transportation Security Programs Need to Refocus on Risk Management, CTA Tells Senate Committee

(Canadian Trucking Alliance)

In an appearance yesterday at a meeting of the Senate Committee on Transport and Communications, representatives of the Canadian Trucking Alliance (CTA) cautioned that land transportation security programs, particularly at the Canada-US border, continue to result in duplication, overlap and ever-increasing costs.

“Like the exporters whose goods we carry, the trucking industry is unsettled by the fact that the cost of moving goods continues to be driven up by security measures that are rolled out and evaluated in isolation from one another. The big picture – an appropriate balance between security and trade efficiency – seems to have been lost,” CTA Senior Vice President Graham Cooper told the committee.

He noted that the trucking industry fully understands how the Canada-US trade picture has changed since September 2001, and has in fact played a key role in trying to maintain the balance between efficient trade and enhanced security: “Hundreds of Canadian carriers – more than any other part of the supply chain, by a wide margin – have signed up for Canada’s Partners in Protection program, as well as the US Customs-Trade Partnership Against Terrorism. The number of Canadian truck drivers who have been security screened under the Free and Secure Trade program now exceeds 70,000. Thousands of carriers are now supplying advance cargo, crew and conveyance data to US Customs and Border Protection on export loads.”

The trucking alliance’s view is that six years after 9/11, it is becoming apparent that Canada and the US have created an array of programs that don’t always dovetail with one another, and the situation seems to be getting worse. As Cooper told the committee, “the reality is that the trucking industry today faces a range of mode-specific requirements, facility-specific requirements, and even commodity-specific requirements coming at us from departments and agencies on both sides of the border. The situation is not sustainable. We can’t go on forever, layering one new program on top of another, further driving up the cost of transportation and harming Canadian competitiveness.”

CTA acknowledged that there is of course no silver bullet to address these problems, but government agencies on both sides of the border must remember that the appropriate balance between efficient trade flow and enhanced security can be achieved only if risks are properly assessed. Cooper told the committee that, “the focus on risk is absolutely fundamental. Our view is that a proper assessment of risk creates a win-win scenario for the trucking industry and government: for us, in ensuring that inspections and programs are targeted to where they are really needed; and for government, in ensuring that scarce resources are applied where they will do most good.”