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Tariff hike on emerging nations may help address currency manipulationMonday, May 06, 2013 > 12:56:10
OTTAWA • The Conservative government’s unexpected move to raise tariffs on goods from many developing nations may have as much to do with fighting currency manipulation and torquing trade talks as leveling the global playing field.
More than 70 countries have been targeted by Ottawa to pay higher duties on products entering Canada, beginning in 2015. These include the so-called BRIC nations —Brazil, Russia, India and China — as well fast-developing countries such as South Korea.
The government’s Budget 2013, released Thursday, included changes to Canada’s General Preferential Tariff (GPT) regime “to ensure that this form of assistance is appropriately aligned with the global economic landscape.”
“These changes also align Canada’s GPT system with other major tariff-preference granting countries, and target the benefits to countries most needed,” the government said in the budget.
The new tariffs will take effect on or after Jan. 1, 2015, and be expanded until Dec. 31, 2024. The GPT list had not been updated since 1974.
The changes were overshadowed Thursday by another tariff change, one that would eliminate all duties on sports and athletic equipment, as well as baby clothes. These come into effect on April 1.
Douglas Porter, chief economists at BMO Capital Markets, said the decision to hike developing nations tariffs “was almost the ‘sleeper’ issue in the budget.”
Ottawa did “a very good job of playing up the tariff cuts [to sports goods] and a good job of downplaying the tariff increases, which are in the order of a magnitude of about four times importance to the tariff cuts.”
“I wonder if this isn’t a bit of frustration with dealing with blatant currency manipulators,” Mr. Porter said.
“I can’t believe all 72 of them are manipulating their currencies. But there are a couple of high-profile examples where the currency is being manipulated, most obviously China and, to a lesser extent [South] Korea.”
This may be “the one way the federal government can address some on that.”
Canada was among the Group of Seven counties to support a February statement saying members would “remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.”
At the time, Finance Minister Jim Flaherty denied the statement was in response to the easing of monetary policy by Japan that coincided with a huge drop in the value of the yen, making its exports cheaper.
Mr. Flaherty left on a trade mission to Asia just days after tabling his budget. He delivered a luncheon speech Monday in Hong Kong and will also travel to Thailand this week.
On the issue of higher tariffs, he told the CBC in Hong Kong that he had not heard any reaction so far on his trip.
“It’s difficult for a BRIC country or Hong Kong to say that they ought to be entitled to a preferential tariff as a poor country,” he said.
Dan Miles, a spokesman for Mr. Flaherty, did not respond directly to the issue of currency manipulation.
But in a statement, he said: “This is the first significant update of these preferential tariffs in 39 years. And many of the countries receiving them have growing economies and are no longer in need of this financial assistance.”
Avery Shenfeld, chief economist at CIBC World Markets, said “by raising tariffs on some of these countries, it gives them more of an incentive to then come to the table with Canada in trade negotiations to eliminate those tariffs.”
“As far as the issue of currencies, I guess that is true for some but not all. They could have tied it to that [issue] if that was the message they wanted to send.
“We are negotiating trade agreements with some of these countries,” he said. “Free trade should go along with free currencies as a pre-condition.”