Canadian exporters, fearing border tax, scramble to shift production

McCoy Global

19/01/2017 19:59

By Andrea Hopkins 
    OTTAWA, Jan 19 (Reuters) - Canadian exporters are scrambling 
to find ways to avoid a potential 10 percent import tax promised 
by U.S. President-elect Donald Trump, including the possible 
shifting of production or supply lines south of the border. 
    Amid warnings from the Bank of Canada on Wednesday that 
protectionist policies brought in by Trump could drive companies 
to invest in the United States rather than Canada, executives 
said their search for options has already begun.  urn:newsml:reuters.com:*:nL1N1F80J8 
    Canadian exporters are not alone, with global business 
leaders talking up the benefits of local production to shield 
themselves from criticism from Trump, who will be sworn in as 
president on Friday.  urn:newsml:reuters.com:*:nL5N1F84F8 
     "We're a Canadian company, we like to build things in 
Canada and export them ... but you can't sell stuff and not make 
money," said Jim Rakievich, chief executive of Edmonton-based 
McCoy Global, which makes oil and gas industry equipment.   
    "We could move our production down into the U.S. fairly 
quickly, we could absorb that production (in our U.S. plants) if 
we had to."     
    National Bank Financial estimated a 10 percent border tax 
could cause Canada's total goods exports to the United States to 
drop by about 9 percent, with non-petroleum goods sinking almost 
11 percent.  
    Exports are expected to drive about a third of Canada's 
economic growth in 2017, behind only consumption and government 
spending, according to the Bank of Canada's forecast this week. 
The United States is Canada's largest export market with about 
74 percent of all goods heading south.  
    Canadian companies with U.S. affiliates may be best placed 
to weather a shift in tariffs, if they can shift production or 
investment to their U.S. plants to avoid an import tax. 
    Foreign affiliate sales to the United States rose to C$298.4 
billion in 2014, the latest year for which data is available, 
from C$285.8 billion in 2013, according to Export Development 
Canada.  
    Some exporters without U.S. subsidiaries have already begun 
to search for new investments.     
    One such company is Mehadrin Group, which includes Canada's 
biggest kosher meat processor.  
    Mehadrin had planned to sell Canadian-certified kosher meat 
in the United States but is now moving quickly to find U.S. 
sources of kosher meat as well as wholesale space in New York 
and Massachusetts to warehouse it rather than try to import it 
from Canada and then raise prices to cover the cost of a tariff. 
    Now, the company is "looking at a couple of places," 
including a slaughterhouse in California, "that can produce some 
volume for us," according to Vladimir Budker, chief executive of 
Mehadrin Group. 
    "Plan B is to look at a couple of local (U.S.) producers - 
we've looked but didn't approach them yet -- to see if there is 
any change in policy, in NAFTA or taxes. We'd be looking at this 
avenue pretty fast," Budker said. 
    For others, their cross-border business is far too 
integrated and specialized to easily separate U.S.-bound goods 
to avoid a tax. 
    Veso Sobot, director of corporate affairs at plastic pipe 
maker IPEX Inc, said products can cross the border between 
IPEX's 18 plants in Canada and seven in the United States before 
they are even ready for market, making a shift in production to 
make products in the United States for U.S. customers 
impossible. 
    Instead, he's hoping Trump will come to see that Canada is 
not a low-cost competitor that needs to be targeted. 
    "We feel very hopeful that ... we will have an exemption to 
Trump's Buy American policy. We believe Canada is not America's 
problem." 
 
 (Reporting by Andrea Hopkins; Editing by Alan Crosby) 
 ((Andrea.Hopkins@thomsonreuters.com; 613 235 6745; Reuters 
Messaging: andrea.hopkins.thomsonreuters.com@reuters.net)) 
 
Keywords: CANADA TRUMP/EXPORTERS