Feature Story: Prince Rupert caught in the middle of Canada-US trade dispute
Prince Rupert's port has been put in the international spotlight after the US government decided on to investigate accusations that it has an unfair advantage over American ports which is causing carriers to divert their cargo north of the border.
The issue has reached the attention of the federal governments of both countries, and the air is filled with talk of trade wars and accusations of unfair government subsidies. A group of American west coast ports are pushing for a fee on goods that are unloaded in Canada in order to “level the playing field.” But the Prince Rupert Port authority says it will defend the Prince Rupert's competitive advantage from US protectionism if need be, but hopefully it won't come to that.
“We are working with the Canadian Government, we are working with Foreign Affairs, Transport Canada, the Canadian embassy in Washington . . . to defend our position. There is the NAFTA (North American Free Trade Agreement) and other free trade agreements that we will use to defend our position if it indeed did requires that,” CEO of the Prince Rupert Port Authority, Don Krusel, told The Northern View.
The Federal Maritime Commission, an independent government body responsible for regulating the commercial use of US waters, voted unanimously on Wednesday to start a study into the effect of the Habour Maintenance Tax on the competitiveness of American ports when compared to ports in Canada and Mexico.
The Harbour Maintenance Tax is charged to shippers when they dock at American ports; the amount paid is determined by the value of the cargo. The money is then used for projects like dredging harbours all over the US. Essentially, the tax is to get companies who use the ports to help pay for their upkeep.
But the thing is, companies unloading cargo at Canadian ports do not have to pay this extra money because Canadian ports are responsible for their own upkeep and simply absorb the expense instead of charging more to shipping companies. Prince Rupert's port has a natural deep-water harbour - the deepest in the country- and so doesn't even need dredging.
In the states, the harbour maintenance tax is being blamed for making US ports less competitive than Canadian ones. Members of Congress from Washington State and California reacted to the industry's worries and sent letters to the maritime commissioner, Richard Lidinsky, asking him to investigate the problem and come up with changes to policy or regulations to solve the problem. The US government is projected to lose anywhere from $575-million and S2.1-billion USD over the next 10 years because of cargo being diverted to Canada.
“It is imperative that we level the playing field between international ports and domestic ports so that the U.S. can continue to compete for cargo ultimately bound for the United States,” reads the letter to the commissioner signed by seven members of Congress.
Now that the commission has accepted their request for an investigation, it will be three weeks before all their parameters of the study will be worked out and released.
The Congress members are worried that the tax is the major reason that carriers are turning away from US ports in favour of Canadian ones because it means shippers can save money by going to ports like Prince Rupert. Figures have been tossed around in the media that the tax costs carriers anywhere between $130-140 extra per container. The Northern View asked the Seattle port authority what was the average cost of the tax at their facility, they said the average was about $80 USD with some containers going going as high as $250 or as low as $40, depending on what the value of the cargo is.
Seattle is a member of a group of American west coast ports called, the US West Coast Collaboration. They say the solution to the problem is to impose a fee on every container from overseas entering the country from overseas by truck or train after being unloaded in Canada or Mexico. Goods originating in either country would be exempt for the fee, so things like Canadian lumber, oil or grain coming into the US by land would not be charged.
So, effectively the Prince Rupert's entire import business would be subject to a fee per TEU at the US border.
Because the fee only applies to international cargo destined for US markets anyway, the American ports say that it would simply be closing a loophole that shipping companies have exploited in order to not have to help maintain the infrastructure they use and make money from, and that doing so will not violate free trade agreements such as NAFTA.
“The need to develop a solution to the land border loophole has become more urgent as the competitive threats facing US ports have intensified. Cargo volumes at Canada’s Port of Prince Rupert have grown exponentially since the terminal opened in 2007, and Vancouver is also increasingly competing with US West Coast ports,” reads the group's position statement.
The Canadian ports do not see it that way.
“So basically they're saying that they want Canadian ports to pay for their own operations, like dredging, now they want to put a tax on our containers so we can pay for theirs too,” says Gary LeRoux, executive-director of the Association of Canadian Port Authorities.
The prospect of a border fee was even debated in Parliament. During question period, New Democrat MP, Mathieu Ravignat, stood up and asked International Trade minister, Ed Fast, what he planned to do about it.
“Canada's ports and railways are competing fairly. The Asia-Pacific gateway initiative that the member refers to is working as intended. We will defend Canada's competitive advantage wherever it is threatened. I have made this clear to FMC Commissioner Lidinsky,” replied Fast.
Both the Prince Rupert port authority and the Association of Canadian Port Authorities say that the Americans are simply looking for an explanation for why they are not seeing the same growth that is happening at Canadian ports and have settled on the maintenance tax. They say Prince Rupert's advantage is its faster loading and unloading times, a dedicated railway corridor, and having the shortest travelling time to Asia, and has very little to do with not having a harbour maintenance tax.
“Shippers are making their decision [to use Canadian ports] on a whole range of different issues and the harbour maintenance tax doesn't really play into it at all,” says CEO Krusel.
If the Americans were to scrap their harbour maintenance tax, Canadian ports expect that, even on this supposedly more even playing field, that very little would change from the way things are now in the industry.
“Let's say everything did become equal with what was happening in the US. It's still faster to ship things from Prince Rupert than anywhere else in the US,” says LeRoux.
There have been accusations of unfair government subsidies going to ports like Prince Rupert and Vancouver have been coming out of the US. Even commissioner Lindinsky has commented that Canadian ports need to compete in the US without the help of government policy. The Prince Rupert Port Authority has denied that it is subsidized by the government.
“These allegations are totally unsubstantiated and the port of Prince Rupert and all Canadian ports do not enjoy any kind of subsidies. What we do enjoy, especially in Prince Rupert, are some inherent advantages,” says CEO Krusel.
Prince Rupert's port was built due in large part to government funding, and public money is often solicited from both the Province and the Federal government to help fund new projects. For instance, the BC government recently announced a $90-million funding package for improvements to the rail lines going into Prince Rupert's Ridley Terminal; only $30-million of this is actually coming from tax payers, with the Feds expected to contribute $15-million of it.
So the Prince Rupert port does receive government money, but none of this falls into the common understanding of a subsidy: where the government pays a business in order to allow them to keep their prices lower than their competition.
The actual scope of the maritime commissions investigation has yet to be determined but will be released in three weeks time. The commission has stressed that industry, governments and individuals from both the United States and Canada will be able to participate and present evidence.
Both the Prince Rupert and Vancouver port authorities will be participating in the study through the Association of Canadian Port Authorities in order to have a united front at the hearings. But they can't say anything more about how the intend to respond until more information on what the study will actually cover is released.