Monday, June 08, 2009

Port of Prince Rupert among Canadian ports in the American crosshairs

“We're really a drop in the bucket,” -- Barry Bartlett of the Port of Prince Rupert, responding in the Globe and Mail to recent charges by American ports of unfair subsidies to Canadian gateways.

The protectionist call in America is reaching across the border to Canada's west coast ports as American port operators begin to increase their rhetoric over what they perceive as unfair subsidies to the Canadian ports.

The Port of Long Beach, California which has suffered the most in the recent downturn in the economy, seems to be leading the charge against the Canadian ports, taking their concerns to the Office of the US Trade Representative, asking that office to champion their charges of illegal subsidies to Canadian ports of call.

They are using the examples of the 283 million dollar upgrade from Ottawa to rail routes to Prince Rupert and Vancouver, as well as the recent federal and provincial funding of $60-million for the Prince Rupert port. Subsidies that they believe give the Canadian ports an unfair advantage over their American counterparts.

And while the charges may make for big headlines in the USA, the Canadian side of the argument seems to be suggesting that the Americans don't seem to have their facts right. In fact, some suggest that the American ports are even more dependent on subsidies from American sources, whether it be the inclusion of direct government spending on infrastructure, dredging courtesy of the US Corp of Engineers or low cost tax exempt bonds issued for American port financing needs.

While it's too early to tell if the concerns over the Canadian ports will make it as far as the WTO, it more than likely will be an issue that continues to gain attention in the US, if for no other reason that to try and increase help for US ports.

Until the global economy improves and with it the tonnage out of ports such as Long Beach, Oakland and Seattle to name a few, Canada will just have to get used to being the pinata for the American shipping lobby.

Two reports highlight the current tone of the discussion from below the 49th parallel, both the Globe and Mail and National Post had items posted to their websites tonight with details on the American angst.

U.S. ports take aim at B.C. rivals over subsidies
Steven Chase and Patrick Brethour
Ottawa, Vancouver — Globe and Mail Update,
Monday, Jun. 08, 2009 07:41PM EDT

Canadian ports are being targeted by U.S. rivals as trade rule scofflaws benefiting from illegal government subsidies – part of a mounting wave of American protectionism as the global recession hammers shipping traffic.

U.S. port officials yesterday brought their complaints against Canada to the Office of the United States Trade Representative, making the case that government help for ports such as Vancouver is partly to blame for a decline in business at American terminals.

“We're playing Paul Revere on this, but it's the Canadians, not the British, who are coming,” Port of Long Beach commission president Jim Hankla told Bloomberg News in Washington yesterday.

California's Long Beach, the second-busiest port in the U.S., has seen container traffic drop by more than 40 per cent from an August, 2006, peak – a decline Mr. Hankla said is largely due to the downturn but can be partly blamed on Canadian investments that diverted cargo from American facilities.

In a draft memo prepared for the Washington visit, a Long Beach port official argued that Canadian governments' spending on rail and port infrastructure constitute illegal subsidies under the World Trade Organization, a global trade referee.

The memo by Alex Cherin, Long Beach's managing director of trade relations and port operations, singles out two investments: $283-million from Ottawa to upgrade rail routes to Prince Rupert and Vancouver, as well as federal and provincial funding of $60-million for the Prince Rupert port.

This has made “these gateways more attractive to Asian-originated cargo destined for the U.S. South and Midwest consumer markets,” Mr. Cherin's memo says. The memo argues for a campaign by West Coast U.S. ports to “challenge the actions by the Canadian government as violative of WTO trade obligations.” Even if it doesn't succeed, the memo notes, it could generate increased attention and “accompanying funding” for U.S. ports and “help stem the competitive tide turning towards Canadian” facilities.

But the two Canadian ports at the centre of the subsidy allegations were surprised to hear about the accusations – particularly given their continued struggle to compete against the government support enjoyed by U.S. rivals.

“They're tax collectors, we're taxpayers,” said Anne McMullin, spokeswoman for Port Metro Vancouver, referring to payments the port makes each year in lieu of municipal taxes.
The Business Council of British Columbia has sounded the alarm over subsidies to U.S. ports, including direct government spending on infrastructure, the ability to issue lower-cost, tax-exempt bonds and free services such as dredging performed by the U.S. Army Corps of Engineers.

The port of Vancouver does not receive any operating subsidy from government, unlike its U.S. counterparts, she said. As for the notion of infrastructure subsidies, she said any improvements to transportation infrastructure in the Lower Mainland were of only indirect benefit.

Ms. McMullin said Vancouver's market share has risen in recent months, but only because its traffic has declined at a slower rate than at U.S. ports. Unchanged is the fact that almost all imports arriving in Vancouver are bound for Canadian destinations, she said.

Since its inception, the port of Prince Rupert has positioned itself as a competitive alternative to southern ports for shipments destined for the U.S. heartland. However, Prince Rupert has seen its growth stall this year – and its total traffic is the equivalent of only a fraction of the lost business at the Los Angeles port. “We're really a drop in the bucket,” said Barry Bartlett, spokesman for the Prince Rupert Port Authority.

Despite the assertions of stolen market share, the real culprit in the loss of business along the West Coast of North America is the global recession. The stumbling U.S. economy has slashed demand for transpacific shipments of consumer goods, pushing major U.S. ports to double-digit drops in volume. Worldwide, volumes are headed for the first annual decline in the 40-year history of modern container shipping.

With files from Bloomberg News

U.S. Port official says Canadian subsidies violate WTO rules
Mark Drajem, Bloomberg (via National Post)
Published: Monday, June 08, 2009

Canadian ports such as Vancouver get government subsides that violate rules of the World Trade Organization, letting them undercut prices and decrease cargo volume at U.S. facilities, a California port official said.

Competition from Canada is partly to blame for a drop in freight of about 40% at the Port of Long Beach, Jim Hankla, president of the port's board, said in Washington Monday.

"We're playing Paul Revere on this, but it's the Canadians, not the British who are coming," Mr. Hankla said. He and other port officials are set to raise the issue at a meeting with the U.S. Trade Representative's office Monday.

Long Beach, the second-largest port in the U.S., had fewer than 200,000 cargo containers imported through its terminals in April, down from a peak of 348,000 in August 2006. Import volumes for the first four months of this year are off 23% from the same period a year ago.
While most of the drop is a result of the global recession, the Canadian investments have diverted some cargo away from U.S. ports, Mr. Hankla said.

In a draft memo that Managing Director Alex Cherin prepared for a meeting with the trade office, the port argues that Canadian investments in rail and port infrastructure may violate rules in the WTO that limit subsidies.

The government aid is being used to "increase Canada's share of North American-bound container imports," the memo said.

Specifically, Mr. Cherin complained about government funds used to market the Canadian ports to current users of U.S. ports; US$283-million in rail infrastructure investments and US$170-million to build a new terminal at Prince Rupert.

Even if the complaints don't lead to a case at the WTO, they will "have the related effect of advocating for more attention on U.S. national freight policy and accompanying funding," Cherin wrote.

Spokesmen for the Vancouver and Prince Rupert ports didn't immediately return telephone and email messages.

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