Monday 29 April 2013

FIPA: CANADA CHINA AGREEMENT ON TRADE ( Foreign Investment Promotion and Protection Act) (Updated June 14, 2013)


Part 1: Clean Tech Trade Wars: US and European Union versus China
Canada is shooting itself in the foot with the China-Canada trade agreement - the Foreign Investment Promotion and Protection Act (FIPA).   Specifically, a little known stipulation in the China- Canada trade agreement risks torpedoing the development of a Canadian clean energy technology sectors.   This stipulation calls for no commercial barriers on environmental technologies.  Why is this dangerous? 
Well, with Canada's clean tech sectors are still very much in an embryonic stage,  FIPA, as it presently stands, would impose severe limitations on Canada's potential participation in the phenomenal growth of global clean technology sectors, because of the massive and highly subsidized dumping of Chinese clean technologies on global markets. More precisely, while the 1) US response to this dumping has been to impose trade tariffs running from 31% to 250% on solar tech imports from China along with tariffs of 45% to 71% on imports of Chinese wind turbine towers;  and 2) the European Commission in June 2013 announced provisional tariffs on imports of Chinese solar products averaging 47%;  Canada is the only country dumb enough to accept, via the FIPA, a guaranteed exemption for environmental technologies from commercial barriers. 

In the US, the action taken by the US Dept. of Commerce in Fall 2012 followed 1) the bankruptcies of 4 US solar firms; 2) complaints filed by The Coalition for American Solar Manufacturing (CASM), representing 11,000 US workers and 150 US companies; and 3) complaints filed by the US’ Wind Tower Trade Coalition representing 4 US wind tower manufacturers. 

With 119,000 jobs in the US solar sector in 2012 -- a 13.2% increase over 2011-- and 75,000 in the US wind sector in 2011, the US wanted to take swift action to address unfair trade practices affecting sectors experiencing solid growth in these difficult economic times. 

In Europe, the European Commission (EC) took action on complaints from EU ProSun, a group representing 20 EU solar companies and the majority of European solar industrial capacity.  In May 2013, the EC issued a "warning shot" by indicating it might open fair trade probes into Chinese mobile telecom equipment and in June 2013 the EC announced provisional tariffs on solar imports from China, stating that the dumping by China's solar firms "caused thousands of Europeans to lose their jobs, and 60 European factory closures of which 30 were in Germany alone”. 

For Europe, the job stakes are especially high in that Europe's clean tech sectors represented 1.1 million jobs in 2011, 372,000 jobs in Germany alone. In effect, “illegal dumping” below the cost of production allowed China to capture more than 80% of the EU solar energy market “from virtually zero” only a few years ago.

Accordingly, beginning June 6, 2013, the EC tariffs came into effect at a reduced rate of 11.8% for 2 months with the game plan being that, in the event of failed negotiations with China, the full provisional rate would be ramped up to an average of 47.6% with the high end at 67.9% for the next 4 months. Subsequently, the EC would decide as to whether it would make the tariffs permanent

In parallel, BSW, Germany's solar trade association is reviewing a trade case against China.  

Notwithstanding the Europe's sabre rattling, it appears that the majority of European nations, Germany in particular, would prefer a negotiated settlement over trade wars.

China, for its part, initiated its counter offensive, in July 2012, when it launched a WTO anti-dumping and anti-subsidy investigations into allegedly unfair low priced US and South Korean polysilicon exports to China.  Polysilicon is a key raw material for solar panels and 44% of the polysilicon used by Chinese solar manufacturers comes from the US.  

As well,  China registered a complaint to the WTO to the effect that $7.3B worth of Chinese renewable energy products have been subject to US tariffs in recent years, contrary to WTO rules. China also launched own probe into subsidies of 4 US states and found they violate WTO rules.

The irony in all this, is that largely due to US polysilicon exports to China, the US had a $1.6B clean tech trade surplus with China in 2011.   Specifically, when polysilicon, PV production machines and solar materials are factored in, the US held a $913M solar trade surplus over China in 2011. 

Regarding China's response to the EC's June 2103 tariff initiatives, China’s polysilicon producers have called on Beijing to launch an anti-dumping investigation into European polysilicon imports, and urged Beijing to retaliate.

To add some colour to China's sabre rattling, China has also indicated it would investigate the dumping of European wines in China.  China did, however, acknowledge that Europe provided for a 2 month period of reduced tariffs.

Over the long run, however, Chinese manufacturers will likely to have an advantage in trade wars because of generous cheap financing, lower production costs, scales of production which lower total costs, and an ability to refine silicon, make wafers and cells and build modules, as well as, or better than, any other group of manufacturers.
 

Part2: The Origins of Massive Dumping: Generous Financing and Surplus Manufacturing Capacity 

The massive dumping of Chinese clean tech products on global markets is a consequence of two factors,  1) extraordinarily generous financing and 2) excess domestic manufacturing capacity.
 
Generous Financing
China's state subsidization flows in so many successive chunks of billions of dollars that it is difficult to keep track of it all.

In recent years, the Chinese Development Bank (CDB) committed $45B over 5 years for the development and deployment of smart grid technologies.  – Smart grid technologies are essential for integrating massive amounts of intermittent energy sources --- such as wind and solar energy --- by storing energy during low demand/excess supply periods, and redeploying stored energy, as required.  The CDB also contributed substantially to the $34B invested in 2010 in China's solar sector.  Not long ago, the CDB announced $15B for the wind energy sector. 

As for state financial assistance for clean tech manufacturers, no other nation can afford to come anywhere close to China .   Goldwind and Ming Yang are cases in point.  Goldwind, the state-owned and largest wind turbine manufacturer in China, and 4th in the world, recently got $6B from the CDB to finance facility and international business development.  Ming Yang, a smaller turbine manufacturer, acquired $5B from the CDB for loans and credit facilities for the period 2011 and 2015 to prepare the way to enter international markets. 

In the solar sector, China's solar photovoltaic  (PV) manufacturers now represent 50% of the global PV market, up from 1% as recently as 2004. 

Finally, on a grander scale, it is worth noting that in August 2012, China's State Council announced it will spend $372B for the period leading up to 2015 on emissions reduction, energy efficiency and pollution control. http://www.ibtimes.com/china-spend-372-billion-reduce-pollution-encourage-energy-efficiency-759575 

Surplus Manufacturing Capacity
The second factor contributing to massive dumping of Chinese clean energy technologies on international markets is surplus manufacturing capacity.  In short, in the rush to develop clean energy manufacturing capacity and construct renewable energy production sites, China "forgot" to increase its transmission capacity to accommodate the new sources of clean energy production. 

The consequences of the transmission bottleneck was that  30% and 20% of China's wind production capacity was not connected in 2011 and 2012 respectively.

With 25% of wind farm capacity not connected to the grid in China's northern windiest provinces, much of China's wind farm development is now happening in provinces with lower wind speeds, and lower feed in tariffs, but higher local consumption. 
 
To remedy the situation, China will build 19 ultra high voltage lines, but one of the  first two lines  is not projected to be ready until late 2013 and the other sometime in 2014.  The line slated for completion in 2014, to connect Hami in Xinjiang province in west to the central city of Zhengzhou, will be 2000km long and have a transmission capacity of 8000 MW.
 
Official projections aside, few observers expect the excess manufacturing capacity problem to be resolved soon, with many predicting that the situation will worsen before it gets better.  The Chinese Wind Energy Association estimated that there was enough extra wind energy produced in 2011— but not supplied — to power 3 million homes.
 
For the interim catch up period, China's National Energy Administration has been curtailing the development of new clean power production sites by as much as 40%, imposing restrictions on both the scale and pace of wind farm development.  

Compounding these barriers to domestic market growth and accentuating manufacturing overcapacity, the major grid operators, all state-owned --such as State Grid and China Southern Power Grid -- are refusing to purchase all renewables.  These operators are regarded as inefficient, slow to change and troublesome for regulators on matters of compliance. 
 

Part 3: Conclusion

China's cheap financing and temporary manufacturing overcapacity regarding China's clean tech sectors have created the perfect cocktail for dumping.   

The US has acted assertively to address this problem with tariffs even though solar panel related polysilcon exports to China have resulted in a clean energy tech trade surplus in favour of the US.   

The European Union has come up with provisional tariffs on solar imports from China averaging 47.6%.

Only Canada - without any major clean energy tech exports to China  --  is prepared to jeopardize the development of its own clean energy technology industries by accommodating, within the framework of  the proposed Canada-China feed trade agreement, China's wish that environmental technologies be exempt from any commercial barriers  

And this Canadian accommodation comes before Canada has had a chance to develop a green technologies industrial base --  largely thanks to disinvestment policies of the Conservatives. -- Worth keeping in mind here that the US and the Europeans have been acting on behalf of strong existing industrial bases which they want to see continuing to expand as the migration to a green economy intensifies.

 It may be that Harper has no idea of the implications of the environmental clauses in FIPA. 

Will Dubitsky updated 14/06/13

CANADA NOW HAS 2 CONSERVATIVE PARTIES: A VERY SCARY STORY (Updated July 30, 2013)


With so many eagerly awaiting the end of the anti-democratic, unaccountable Harper regime, some seem to be inclined to support any alternative that may stand a chance for replacing the Cons in 2015, after the next federal election.  But maybe we should take a pause to think this through just a little more.  Canadian Idol Trudeau, though he hasn't said that much so far, has already shown that he shares many of the policy positions of Harper.  This is where things get scary.
 
But with Duffy, Wallin, Wright and Harb making the news, it might seem that now is a good time to call attention to Trudeau not believing in a need for changing the Senate status quo. For Trudeau, it's just a matter of choosing good Senators, that is to say, that the Senate would be improved if Trudeau got to choose Liberal Senators instead of Harper choosing Con Senators.  -- But this is merely a small stuff distractions from the frightening resemblances between Trudeau and Harper. 

The Extraordinary Similarities between Harper and Trudeau
Indeed there are extraordinary similarities between Harper and Trudeau on tax fairness; trade; guns; health, sustainable development and participation in the global migration to a green economy;  tar sands and the Kinder Morgan and Keystone XL pipelines; Employment Insurance; an oversized ego; equal opportunity social inclusion/justice; and other matters.   Consider the following:

The Middle Class, Corporate Taxes, Health Care and Trade with China
Regarding the middle class, Trudeau claims to be their champion.  Sound good so far?
Well, never before in the history of Canada have inequalities among Canadians been more pronounced.  Thanks to the corporate tax cuts initiated by the Liberals and accelerated by the Conservatives, those with power and money - especially the petroleum industry and the banks - are sitting on $600 billion in liquidity.  The Conservatives tell us we must tighten our belts,  young people have to accept low wages and precarious jobs, our cities are clogged for lack of investment in sustainable transit alternatives, etc., because the Conservatives tell us the cupboard is bare.

Yet, Justin Trudeau, self-proclaimed champion of the middle class, has said he will not raise corporate taxes.  When push comes to shove, Liberals like Conservatives, always cede to money and power.
http://www.lapresse.ca/actualites/politique-canadienne/201304/11/01-4639753-justin-trudeau-ramener-les-quebecois-vers-la-gouvernance-du-pays.php

Regarding health care, Justin Trudeau thinks there are no money problems associated with health care, just management challenges.  This position is necessary because.....Trudeau would lead a government short of revenues thanks to the lowest corporate taxes among the G8!  Conservatives couldn't agree more. The Cons plan on cutting health care funding within 3 years. So much for caring about the middle class! Very scary!

But there is much more middle class stuff that makes the celebrity Prince Trudeau a scary prospect.  A case in point is Justin Trudeau favoured the sale of Nexen to state-controlled Chinese interests because he said it would pave the way to free trade with China which would pave the way to more prosperity for the middle class,  The Conservatives have said the same thing.  Yet the North American Free Trade Agreement has been around for a long time and middle class revenues/wages are stagnating or going down. -- The middle class is being hollowed out.  The required fixes are internal/domestic.

Regarding the aforementioned proposed Canada-China trade agreement, in response to massive dumping on global markets by China's clean tech industry, the US has
imposed trade tariffs running from 31% to 250% on solar tech imports from China along with tariffs of 45% to 71% on imports of Chinese wind turbine towers; 2) the European Commission is considering tariffs averaging 47% on solar tech imports for China, and 3) Canada is the only country dumb enough to accept, under the proposed China-Canada agreement, a guaranteed exemption for environmental technologies from commercial barriers

Guns: An Integral Part of Canadian Culture
On guns, Justin Trudeau thinks that guns are an integral part of Canadian culture and that the gun registry was ineffective.  Stephen Harper has similar views.  This, despite the fact that the Canadian Association of Police Chiefs supported the gun registry 1) as an effective tool for police in the line of duty and 2) regarding the development of evidence related to judicial proceedings. 

Environment, Submission to the Fossil Fuel Lobby, Tar Sands, Kinder Morgan and Keystone
Then there's the matter of the environment. Trudeau and Harper say they favour sustainable development but the legacies of both of their parties suggest otherwise.  Prior to their defeat, the Liberals had several climate change action plans. They all failed to do the job, because when you got down to the details, their plans were concessions to money and power.  Jean Chrétien promised the petroleum industry that, in the event of a price on carbon, there would be a very affordable ceiling on the price of carbon.  Stéphane Dion came out with his billions for a Climate Fund just before the Martin government was defeated, a fund that would have the government pay the largest emitters to reduce their respective emissions or invest in carbon offsets.  In other words, the more one emits, the more the government would subsidize - a pay the polluter principle rather than the polluter pays.  No wonder Canada's emission levels spiked upwards during the Liberal reign!

Thanks to Conservatives'  narrow focus on accommodating the fossil fuel lobby, Canada is one the rare developed nations that is not a full participant in one of the greatest job creation sectors of our times, the clean tech sectors. China had 1.6 million jobs, and Germany 372,000 jobs, in the clean tech sectors in 2011.  Today, there are over 500 wind tech manufacturing facilities in the US; wind energy was the largest source of new electrical power generation in the US in 2012; the US solar sector employed 119,000 Americans in 2012; and 20% of US venture capital activity in 2011 and 2012 went towards the US clean tech sectors.  Yet Canada is barely participating in green economy and, the few advancements that are being made, are thanks to provincial policies

What can we expect from Trudeau on environmental matters? Don't get your hopes up. Justin Trudeau has already ceded to power and money by being very vague on environmental matters so as not to offend anyone.    Following the forked tongue Jean Chrétien model, Boy King Trudeau supports the Keystone pipeline and the expansion of the Kinder Morgan pipeline to Vancouver (to export tar sands oil to Asia) while saying he is a champion of the environment, even though the emissions associated with the tar sands related production for these pipelines would negate any of the Trudeau's nebulous motherhood notions of being on the side of the environment. http://www.huffingtonpost.ca/2012/11/20/trudeau-northern-gateway-asia-oil_n_2167695.html

Poor Sense of Priorities: Pot Over the Lac-Mégantic Tragedy
More recently, Trudeau has shown his true colours on priorities with the July 2013 refusal of the Conservatives and Liberals to interrupt their summer break for the purpose of holding sessions of the Parliamentary committee on Transport to look into the Lac-Mégantic rail disaster that left 47 people dead.  One doesn't need to await the report of the Transportation Safety Board to figure out that the Transport Canada approval of the Montreal Maine and Atlantic Railway request to have only one person operate a train with 72 wagons of dangerous cargo was a stupid decision.   Former Transport Canada employees have said that, under the Harper regime, safety has taken a back seat to corporate profits.--The odds of the tragedy ever happening with 2 people in charge of the train would have been very minimal. But Trudeau thinks the top message for the lazy hazy days of summer is about legalizing pot.  Glad to see he has got his priorities right. Out to get the Twitter vote? Very scary indeed!

Employment Insurance
It was the Liberals who started gutting Employment Insurance and the Conservatives have merely followed through.  Justin Trudeau must be counting on the short memory of Canadians

Other Matters: Oversized Ego
Multimillionaire Trudeau thinks it's OK to take money from charities in exchange for his princely charm.   Harper also has a big ego, so big that he need not consult his Ministers.  Rather the Prime Minister's Office is in charge of giving Harper Ministers their respective marching orders.

Wrap-up

Wrapping up, juggling complex issues such as taxation fairness, equal opportunity and participation in the global migration to a green economy, health care, day care etc. requires well-thought out synergistic policies with depth.  But both Stephen Harper and Justin Trudeau prefer to operate on sound bite levels or clichés on such matters.  Harper answers all tough questions with "but it's the economy."  As for Trudeau, he simply repeats his aforementioned mantra that he is for the middle class without any references as to what he would do now that income inequalities have reached an historic high and corporate tax revenues aren't sufficient to do anything meaningful for the middle class.

 
Unfortunately, you won't see much of the above-mentioned criticisms in the media.  With very few exceptions, journalists are not interested in the policy details or comparative analyses. The majority of English newspapers in Canada are very partisan and represent, first and foremost, corporate Canada, money and power.  Canadians were criticized by some journalists for falling for a superficial image of the Justin Trudeau brand, but the reasons for this can, in part, be found in the lack of depth by the journalists making such criticisms.

Once again, the Liberals are presenting themselves as the best ones to address their own poor legacy.

Canada now has 2 Conservative parties as Mr. Harper worries about dividing the right.



Very scary story!  Spread the word.

Will Dubitsky, updated 30/07/2013