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Ease Up on Export Bank’s Russia-ban: Business Groups

31 Aug 2016 12:00 AM | Anonymous

By PETER MAZEREEUW 

PUBLISHED : Wednesday, Aug. 31, 2016 12:00 AM 

Canadian businesses are calling on the government to reverse orders to Canada’s export credit agency that stop it from supporting trade with Russia, saying it has cost them millions of dollars in business. But the government and official opposition are standing firm, saying the move is an extension of the more targeted sanctions against the country for its incursion into Ukraine.

Export Development Canada, a Crown corporation, stopped providing insurance and financing for business deals between Canadian and Russian companies in 2014 on orders from the Conservative government at the time, according to spokesperson Phil Taylor.That policy was brought in along with a package of trade sanctions as a response to Russia’s annexation of Crimea from Ukraine in 2014, according to Global Affairs Canada.

However, while the trade sanctions are targeted against specific individuals and entities in Russia, and the Russian oil and gas industry—with its direct ties to many of Russia’s power players—the EDC ban affects any and all transactions between Canadian and Russian businesses that require the special financing and insurance the export bank usually supplies.

“This is affecting everyone,” said Sebastien Dakin, a regional director for the Canada Eurasia Russia Business Association (CERBA). Do business in Russia at your ‘own peril’ Companies seeking to export everything from food and clothing to manufactured goods to Russia don’t have access to insurance offered by EDC, and so are taking a risk when they ship goods that they will receive payment once those goods arrive. They also can’t access EDC financing for buyers, and so often have to find customers in Russia able to pay for large orders up front. Some members have had to stop selling to Russia altogether, said Mr. Dakin.

CERBA has lobbied the government on the issue, as has the Agricultural Manufacturers of Canada. The exports from AMC members have dropped from about $144 million in 2012 to about $23 million last year, said president Leah Olson.

“The industry has been very impacted by the policy. We strongly support the notion that EDC should be active in that whole market region, including Russia,” said Ben Voss, president of Morris Industries, a company that sells air carts, air drills, and other agricultural implements.

The government hasn’t changed its mind. In an emailed statement, a spokesperson for Trade Minister Chrystia Freeland (University-Rosedale, Ont.) reiterated that the ban on supporting business in Russia “is the guidance provided to EDC.”

“Canada has one of the strongest sanctions regimes [in] the world against Russia and we will continue to use it to apply economic pressure on the Putin government. By engaging with Russia on the one hand and demonstrating our firm resolve on sanctions on the other, we strengthen our ability to hold them to account,” wrote Anne-Louise Chauvette, Ms. Freeland’s communications director.

Conservative foreign affairs critic Peter Kent (Thornhill, Ont.) said his party continued to support tough penalties against Russia in response to its military action in Crimea and east Ukraine, despite the “collateral damage” to Canadian companies.

“It’s unfortunate,” he said, but “that’s the reality of life today.”

“Official opposition policy is that sanctions have worked, and are working, and, if anything, should be strengthened,” he said.

“Canadian companies doing business in Russia do that business at their own peril,” he said.

Companies like Mr. Voss’s Morris Industries can’t easily turn to banks or other financial institutions to fill in for EDC, as most won’t take the risk of guaranteeing a purchase across borders, he said.

Global Affairs Canada explained the instructions for EDC to stop “pursuing business” in Russia by noting a similar policy put in place by the U.S. Export-Import Bank.

“Actions taken by the government of Canada in response to Russia’s illegal annexation of Crimea are made strategically and in close coordination with our partners,” said GAC spokesperson Diana Khaddaj in an emailed statement.

Quebec aerospace manufacturer Bombardier experienced the “peril” described by Mr. Kent firsthand. The company suspended negotiations on a $3.4-billion sale of turboprop aircraft to a Russian company in late 2014 after the sanctions were imposed on Russia, and another Russian buyer was left to scramble for financing for a sale of the company’s CSeries jets last year after EDC stopped providing that service.

A spokesperson for Russia’s Ilyushin Finance Company, which had hoped to buy those jets, blamed EDC for its failure to go ahead with the purchase as planned, telling Aviation International News earlier this month that the hold on EDC financing for business with Russia was politically motivated.

IFC’s purchase order was eventually changed to include fewer jets and a single turboprop aircraft, AIN reported.

Bombardier declined to make a spokesperson available for an interview on the EDC policy. In an emailed statement, spokesperson Simon Letendre wrote that the company was continuing to pursue business in Russia. Pork ban holding up Canadian exports The EDC website explains the policy on Russia by referring to Canadian trade sanctions.

However, those sanctions do not require a blanket ban on trade between the two countries.

The current sanctions against Russia “are not comprehensive sanctions that prohibit Canadians from doing business with Russian entities” but are targeted to certain people, entities, goods, services, and technology, said Vincent DeRose, a partner in the Borden Ladner Gervais Ottawa law office who leads the firm’s defence and security group.

Industry Canada trade statistics show that manufactured machinery and equipment are among the biggest exports from Canada to Russia. Aerospace products including helicopters, airplanes, and flight simulators made up the top two most exported product groups tracked by Industry Canada last year, with a combined value of about $124 million.

Pork was the leading export from Canada to Russia by far up until 2014, but the Russian government banned meat imports from Canada and other Western countries that year in response to their sanctions.

Fortunately, Canadian pork producers have mostly been able to find other markets—primarily in Asia—for their formerly Russian-bound product, said Gary Stordy, a spokesperson for the Canadian Pork Council.  

p e t e r @ h ill t i m e s.c o m 

@ P J M a z e r e e u w

Peter Mazereeuw is a deputy editor for The Hill Times covering trade, immigration and more. (http://www.hilltimes.com/author-bio?AuID=57142) He can be reached at [email protected] (mailto:) Follow him on Twitter at @PJMazereeuw. (https://twitter.com/PJMazereeuw)