Diane Francis on Canadian Politics

Wednesday, May 24, 2006

Ambassadorial View from Washington

Diane Francis column may 23

NEW YORK CITY - Canadian Ambassador Michael Wilson set aside some time this week for an interview on his new job. His tenure has been dominated by the softwood lumber file, allowing him to spend only a handful of days in Washington, but there are many other interesting challenges ahead.

Q. How did your ambassadorship come about?
A. It came out of the blue. Derek Burney asked me early on in January, during the election, if I was looking for anything. I said no. I just want to see this team win. After the election, the rumor about me was bubbling and this was the only thing that would have brought me back in public life."

Q. What's the attraction?
A. "The attraction is to be in the most important capital of the world today...to be there, when both the president and prime minister have gotten around bumps in the road and all those problems are behind us."

Q. What's the attitude toward Canada?
A. "Certain people in the administration were quite upset with the Iraq decision. Some people said they were less upset by the decision than by the way the decision was given [without advance warning].

Q. What's the view toward Canada as an ally today?
A. "It's clear we are an ally because the Prime Minister's first international visit was to Afghanistan. This sent an important signal to our troops over there. It sent a signal to the Canadian people that it's important to us as a country to help a democracy survive and it also sent an important signal to our 34 allies in the Afghan coalition."

Q. The Canadian tourist industry is concerned about the new requirement, as of January 2008, that anyone entering the U.S. must have a passport. This will mean that Americans visiting Canada will have to have a passport to re-enter the U.S. and since only 20% have passports it will destroy tourism and conference sectors. What are we doing about this?
A. "Americans are not saying there has to be a passport. There could be an identity card. There is a group of Canadians and Americans working on the technology, how people can acquire cards and systems integration, or linking cards to data bases. Until they determine the action required, there's no need to pound on the table. Let's wait to see if we're facing a real problem on implementation."
"We have no quarrel with the security concerns. Security trumps most things in Washington. And Canada has been pulling its weight since 9/11. We have spent C$10 billion on border and customers securities, immigration cooperation, sharing information. Have we done enough? We have to do more."
"We also have to address misinformation. Two months ago, someone said 11 of the 19 terrorists involved in the 9/11 attacks had come from Canada. Not one of them did. This is frustrating. We are looking at ways of addressing that challenge by identifying what we've done to the American public. We don't want terrorists in our country anymore than Americans do. We don't want people blowing up the TD Centre or whatever."

Q. What dangers do you see lurking in the U.S. political climate that could adversely affect Canada?
A. "This country is thinking in a more protectionist and isolationist way than we've seen in a number of years. Leadership is important, both in the administration and Congress. They cannot let the most powerful nation in the world withdraw into itself."

Q. What about Canada's energy trump card?
A. "Energy is number one for us. Our export of energy is very definitely appreciated but this is not a card to play at this time."
"In oil, we are the number one exporter and sell more to the U.S. than Mexico, Venezuela and Saudi Arabia. These countries have a less secure profile and we must nremind people of this reality so when the Americans come to us with another problem they have a more positive mindset. Our energy situation, particularly the oil sands, becomes a beneficial backdrop to any discussions with Americans."

Q. Given the C$'s strength is there any chance of a single currency?
A. "No. Look at the last 20 years. In 1986, the C$ was 69 cents, in 1990n it was 88.5, in 2002, 62 cents and now it's 90ish. Take that flexibility out of the economy, and you have to get flexibility somewhere else. One part of the economy might benefit from a fixed dollar and it would be worse for another part. By blending the currencies you would build in a new stress."

Wednesday, May 17, 2006

Genghis Con Job

Diane Francis column Wednesday may 17:

Mongolia will be kicked into the economic dark ages if its President signs a draconian law passed last week which virtually confiscates all mining operations.

And the Canadian government should get involved. Ottawa should issue a stern rebuke given the damage that will be caused to Canadian companies and their investors who have poured millions into Mongolian exploration and operations in good faith.

Canada's mining industry dominates exploration and development in that country. Hundreds of Canadian companies, led by Ivanhoe Mines Ltd. and Centerra Gold, will be adversely affected by the law which abrogates agreements made with the industry since the collapse of communism there in the early 1990s.

Their shares fell dramatically this week on news of the tax which was passed late last Friday night. It must be signed by the President of Mongolia to become law.

"The problem with Mongolia is that there is a lot of government there, but no leadership," said mining consultant Terry Ortslan with TSO & Associates in Montreal. "This will look bad on them and if the President signs this legislation, mining activity will dry up."

The proposed windfall profits tax would allow government to grab 68% of the prices above levels not seen in several years. For instance, the government would take 68% of copper prices above $1.18 a pound. It's currently trading as high as $4 a pound. It would take 68% of gold prices above $500 an ounce. Gold is currently above $700 an ounce.

Centerra, spun off from Saskatchewan's Cameco Ltd., is producing gold in Mongolia and will be immediately impacted. Ivanhoe is still exploring and has yet to sign a binding agreement with the government there.

Mongolia's parliamentarians appear to have been swept up in a form of misguided economic nationalism aimed at grabbing revenue in light of record commodity prices.

Threats of new royalties, and more drastic measures, are sweeping Indonesia, Africa and parts of Latin America. Venezuela is threatening to nationalize its oil industry. Bolivia recently seized gas fields. Peru is talking about high royalties after the fact on mining operations.

"Mongolia is not unique," said Ortslan.

But what was unique about Mongolia was its business-like approach to attracting exploration. Its Mining Act was drawn from similar laws in Australia, Canada and the United States and offered great incentives for companies to explore and promised to reward success.

It was the most generous regime in the world which was necessary to attract activity to a hostile, cold, landlocked and remote country perched atop China.

I visited the country in August and its officials sounded convincing.

"Mongolia looks forward to becoming a mining powerhouse," said Mongolia's Minister in charge of resources, Lursanvandan Bold, in an interview in his office in Ulaan Bataar last August. He spoke flawless English and German to a group of European money managers assembled to learn about the country's mining regime. '

"Last year, 4% of all exploration dollars spent around the world were invested here," he said. "We are now one of the top ten exploration destinations in the world and the only Asian country in that list."

The country had a right to be proud.
Currently, there are 6,000 licenses for exploration and mining granted to 800 companies. Nearly one-third of its total land mass, which is three times' bigger than France, has been licensed for exploration.

The country is an Asian version of Canada complete with its cold climate, space, sparse population and resource wealth which includes everything from oil and natural gas to coal, uranium, gold, copper, lead, zinc, rare earth elements, phosphorite and silver. There are also discoveries
of massive underground water reserves beneath the Gobi.

But last week's events show that its politicians seem bent on reneging on their promises.

This will cost the country its credibility and prove to be an enormous mistake. Mongolia will revert to its backward state. Before the 1997 Minerals Act, the country's mining industry consisted of a handful of foreign explorers and a few inefficient Russian mines in operation.

"The Russians have a gigantic, joint venture mine with Mongolia and will be furious over this," said Mr. Ortslan. "That mine represents half the trade earnings for the entire country."

Ivanhoe Chairman Robert Friedland was one of the first to be attracted to Mongolia and within short order his geologists made a massive copper-gold discovery, Oyo Tolgoi. Ivanhoe has been spending US$10 million a month drilling holes, testing results and pouring a gigantic
concrete shaft in preparation for production.

Ivanhoe's find is Mongolia's flagship mining prospect and helped spawn a mining boom in this landlocked country of 2.5 million Mongols and 40 million livestock.

"It's unfortunate for Mongolia to make such a major error. They are sending a message to the world. The President should come out and say he's not signing it and that the country keeps its promises."

Wednesday, May 10, 2006

Stephen Harper's Business Smarts

Diane Francis column for Wednesday Post May 10:

Canadians finally got it right when they turfed out the Liberals and took a
chance with the Tories and Stephen Harper.

Business is satisfied with his government so far, and should be. The tone of this government is vastly improved and in just three months there have been two achievements - the settlement of the softwood lumber deal and an excellent budget last week.

The budget hit all the right notes and even drew fire from the country's handful of neo-con commentators, all three of them. The significance

of this is that it means the budget positioned the Tories dead centre and away, policy-wise, from the extreme right as well as the extreme left.

In other words, the Tories are the country's only pro-business party of the
center. And that's a winning franchise in Canada from coast to coast. This is because the majority of Canadians understand that their welfare state can only be fuelled by wealth creation.

The budget also benefited everyone. Lower income families gained the most, proportionately, from the lower GST and the $100-a-month child allowance. The childcare funds also disproportionately benefit immigrants, who often share childrearing responsibilities in their homes among family members and do not desire, nor need, institutionalized daycare.

Clearly, the business-like manner of this government and the absence of scandal puts the lie to the labels of Stephen Harper as "scarey" or that the party is “populated by extreme wing nuts” ready to gut the social safety net.

Harper's leadership style is also a winner in the eyes of business. He
leads his caucus like a CEO runs a public corporation which means transparency, full disclosure to "shareholders” and clear messages from a single spokesperson.

The control of press communications has upset the Liberal media, and various scrum-rats, who are really fight promoters, not political reporters. They love nothing more than to ferret out showboats like Carolyn Parrish or other loose cannons. So far, so good and caucus discipline has held firm.

Most of all, the Harper government is good news because it means that the country's business community can relax a little. Business life is tough enough without facing worries over anti-American remarks by Liberals in cabinet or policies imposed by closet socialists who misunderstand or dislike capitalism.

Of course, not everything has been handled well by the Tories. The flag flap was a mistake and the government had no business making unilateral decisions without consulting veterans, the military or bereaved families.

But Harper’s economic policies are pretty flawless to date. And he deserves full marks for tabling legislation that will clean out the corruption that the Liberals left behind. Giving the Auditor General teeth is a great step forward, along with other measures.

Diplomatically, the Tories have pulled off the unattainable by settling the software dispute. For years, the nation’s softwood lumber producers have been damaged by the nastiness of the Liberals toward Americans.

The problem began when Jean Chretien appointed his nephew, Raymond Chretien, as Canada's Ambassador to the United States. Clearly, Raymond was better suited to another line of work. In 2000, he was quoted in the press undiplomatically favoring the Democrats over the Republicans in that election.

After the Republicans won, the gaffe was never overcome despite Raymond’s sudden transfer to Paris. Worse yet, Uncle Jean escalated the disdain through his own ill-considered words and deeds, then unleashing his name-calling anti-Americans. This was equivalent to the captain of the hockey team swinging at the referee.

So the Liberals lost the only viable solution to the softwood problem. To look like they were doing something productive, they foolishly opted to spend tens of millions of dollars in American and international trade courts.

It was a doomed strategy because appeals are endless, the softwood lumber has always been a special managed relationship exempt from the Free Trade deal and because American trade courts always favor the home team.

Softwood lumber has never freely traded because of politics and the Liberals under Chretien and Martin never understood how the U.S. system works.

Washington is not a parliamentary hierarchy, but a co-management system. This means that the only lobbyist and litigator that can help, or will, help foreigners fend off Congressional protectionism is the occupant in the White House.

And all it took on the part of the Tories was to bring back civility in its dealings with the White House. In no time, the administration waded into the controversy and stopped the damages imposed by protectionists on Canada’s softwood lumber producers.

Such relations are part of the DNA of the Tory party, by the way. This is because a pro-business party understands that diplomacy and trade are no

different than any deal between two parties. Mutual respect is the infrastructure needed in order to do business.