Protectionist Policies and How Canadian Companies Can Fight Back
August 27, 2019
By Tim Runge, Partner
Much is being made (as it should) of the recent announcement by Bombardier that it will eliminate 550 jobs in Thunder Bay. It did not take long for senior-level politicians to assign blame at one another for the job losses, small consolation to the families who depend on these jobs. Is the slowdown in new orders from the Province of Ontario, “Buy American” policies, or even trade restrictions between our own provinces?
Corporations who sell into markets that require public funding must think differently about themselves, especially with regard to infrastructure projects. They are not in the business of only selling rail cars or other commodities to the public; they are also purveyors of wealth, community benefits, and economic prosperity. From the C-suite down, defining precisely what business a company is actually in is a fundamental marketing principle and critical to success.
In 1988, upon joining Babcock & Wilcox, one of Canada’s biggest and most successful exporters of manufactured goods, my first assignment was to structure a large barter with Romania on behalf of a consortium of CANDU Suppliers. At first glance this appeared to be a way to create the foreign exchange needed to pay ourselves for our goods and services. In reality such a structure had far more to do with economic development. The Romanians –still under central rule- could manufacture goods, but weren’t very good at selling them into a global market. I realized some years later after the dust had settled that we, Babcock & Wilcox and the Consortium of CANDU Suppliers, were not just purveyors of nuclear power systems but were also in the Economic Development business. We had to arrange for the purchase and sale of Romanian products; we couldn’t sell our goods, without selling theirs.
Jump ahead 32 years and things have not changed little, and I will argue never will, until there are no more politicians. Which means of course, it never will. Elected officials or even unelected ones like Nicolae Ceausescu in Romania like to be associated with job creation; not job losses. A dimming economy is never a good thing for either dictators, or elected officials.
Protectionist policies have always existed. Canada was one of the first countries to implement a formal offset policy when Air Canada was still a crown corporation. The policy required bidders to agree to build aircraft or its components in Canada. Today that offset policy is now called the Industrial and Technological Benefits Policy –offset is a dirty word that has long gone out of fashion. It is applied to mostly defence purchases today as the WTO Government Procurements Agreement prohibits offset on civil purchases for those signatory countries and Canada is a signatory to the agreement.
The United States will stand up proudly, hands on hearts and say, “We have no such requirements”. Not so. The US Government is the largest buyer of defence equipment in the world and therefore has the largest defence industrial complex in the world. There are provisions that make it very difficult for non-US defence companies to sell into that market unless they can show significant US content. It is offset by simple another name, “Buy America”. It is why foreign companies like BAe have such a large footprint in the US. The US defence industry is one of the largest creators of employment. These are also good jobs and one could argue largely subsidized ones.
We are not trade lawyers and I cannot make a lot of sense as to what is "legal" or not under the various trade agreements, or what national or subnational governments can and cannot do, or what the rules under the new NAFTA if it is ever ratified or the Canada European Comprehensive Trade and Economic Agreement will allow. But does it really matter especially when someone like a Donald Trump is at the wheel? And will it even get better under someone else's watch. If Canada wants to be successful internationally rather than complain about what is right and what is wrong, fair or unfair, legal or illegal and to spend endless hours seeking exemptions one should remember what motivates politicians and to figure out what they need to do to Americanize their bids. It just means they need to show they understand the importance of prosperity in a local community. There is simply no need to move entire production operations to another country. Supply chains are global and there are ways to ensure
One of the most important assets any corporation has is an ability to ethically create wealth and prosperity. Companies need to think about how they can contribute to a local jurisdiction in a variety of creative ways; not simply think about moving entire plants to another country. You cannot build plants everywhere. Bombardier has a responsibility to Canada too and it needs to be smart in how it manages its relationship to its home country as well as those in which it is trying to sell.