2.4 – Issues to Monitor for Western Impact
The following issues contribute to the overall western context. WD is following these issues for developments relevant to western Canada. The department will advise the Minister if WD is asked to take action.
Canadian National Railway (CN) Strike
Issue
Key industry sectors in western Canada are being impacted by an interruption to CN’s rail service due to strike action by some 3,200 conductors, trainpersons, and yard workers. CN is one of the two major Class I freight railways in Canada accounting for 52.8% of the Canadian rail system.
[Redacted]
Background
- Workers at CN have been on strike since November 19, 2019. The Teamsters Canadian Rail Conference (TCRC) union representing the striking employees have been in negotiations with CN for several months. The previous collective agreement expired on July 23, 2019.
- Negotiations are continuing during the strike action. Issues related to the health and safety of the workers are the focus of discussions.
- The Federal Mediation and Conciliation Service has been working with the parties to help reach an agreement. Labour Minister Filomena Tassi has said she will be reaching out to both parties to encourage a resolution. Transportation Minister Marc Garneau has also reiterated the need for both parties to come to a resolution through collective bargaining.
- Prior to the TCRC notice of strike action, CN had announced its plan to cut about 1,600 jobs citing declining freight volumes and revenue due to a weakening North American economy. A spokesperson for CN rail noted that a slowdown in BC’s forestry sector and weather-delayed grain shipments from the Prairies are affecting their freight operations.
Impact on Key Western Canadian Sectors
Due to the predominance of its resource-based industry sectors reliance on rail, western Canada’s economy will be hit significantly hard if the strike continues beyond one week.1
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Grain
- The strike is occurring during the peak shipping season for western Canadian farmers. CN holds about half the market share of the shipment of grain on the Prairies. It moves grain to ports in Vancouver, Prince Rupert, BC, and Thunder Bay, Ontario for shipping to international customers.
- Grain farmers in western Canada are already facing economic hardship from trade actions and a delayed harvest due to cold and wet conditions in the fall. While the crop yield this year has been large, some of it is still on the ground. Farmers have been counting on the rail service to be available as soon as they are able to move more grain.
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Petroleum and Chemicals
- CN reportedly handles over 50% of all Canadian chemical production and transports 60% of Canada’s crude-by-rail exports. It is the only rail carrier servicing three petrochemical centers in North America: the Alberta Heartland; the US Gulf Coast; and Southwestern Ontario. To date, in 2019, CN moved an average of over 16,500 weekly carloads of petrochemicals across its network.
- The Canadian Association of Petroleum Producers (CAPP) has voiced its concern over a shortage in rail capacity, particularly as the industry is already facing capacity constraints on pipelines in western Canada.
- According to the Chemistry Industry Association of Canada, some chemical facilities began shutting down operations in advance of the strike; they estimate the economic impact on larger companies that have to shut down is $1 million a day.
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Mining
- Western Canada is home to several mines that rely on the rail network to ship major products such as fertilizer (potash and other), uranium, metals, and coal. To date, in 2019, CN moved an average of nearly 18,000 weekly carloads of metals and minerals across its network.
- According to the Mining Association of Canada (MAC), a prolonged strike would have serious impacts on the industry, both on the transport of products and the shipment of fuel and supplies to mine sites. MAC members have cautioned that the strike could trigger mine closures and job layoffs within days.
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Forestry
- Canada’s forest products sector reportedly accounts for 10% of the total tonnage transported on Canada’s rail network. The sector relies on rail infrastructure to get 90% of its products to export markets.
- The BC Council of Forest Industries is concerned the strike will create further hardship for BC forest companies, workers and communities at a time when the sector is facing increased global competition.
International Agricultural Trade Disputes
Issue
China and India are pursuing trade action against Canadian agricultural products. Western Canada is the largest producer of the crops affected by these actions, so WD may be called upon to boost Government of Canada efforts to support the industry.
[Redacted]
Background
- India placed tariffs on Canadian pulse crops in 2017, which affects pea, lentil, and chickpea exports. Saskatchewan is Canada’s largest exporter of peas and lentils, and India has been its largest export market. In 2018, the tariffs contributed to a year-over-year decline of 83% in Saskatchewan’s pea and lentil exports to India. However, there were opportunities in other markets, and western Canada’s overall pea/lentil exports only declined 22% during the same period.2,3
- China’s 2019 trade action, focused on canola seed and meat products, commenced earlier this year. While the ban on Canadian meat products was recently lifted, restrictions on canola remain. The West produces over 99% of Canadian canola. Nearly half of the canola exported in 2018 went to China.4 In fact, the value of Canada’s 2018 canola exports to China was higher than the value of the next four highest export markets combined (Japan, Mexico, United States, and Pakistan). The financial loss associated with the disappearance of this market will be felt most heavily in western Canada.
- The federal Government has announced various financial support measures for agricultural producers, including $150 million in additional insurance support and increased loan limits. Canada has also requested WTO dispute consultations with China to resolve the issue.
- Agriculture and Agri-Food Canada co-leads a Government of Canada Canola Working Group, which is working with stakeholders towards resolving the market access issue for Canadian canola.
Trans Mountain Pipeline Expansion
Issue
The Trans Mountain Pipeline Expansion is a contentious issue in western Canada. Governments, regions, and Indigenous groups are significantly divided on the project’s economic benefits versus environmental harm. Although WD’s mandate does not include a legal or regulatory role in pipeline development, the department is monitoring this issue due to its significant western impacts.
[Redacted]
Background
- While Canada’s economy has largely recovered from the 2014 global oil price collapse, Alberta’s recovery has sputtered partially due to oil transportation bottlenecks that contributed to substantial discounts for Alberta oil in 2018. Economic growth forecasts for the province remain weak, high downtown office vacancy rates persist, and unemployment remains elevated.
- In August, the Government announced construction of the federally owned Trans Mountain Pipeline (TMX) would resume in fall 2019. Construction has resumed, with a reported 2,200 people hired, and an additional 2,000 workers expected to be involved by the end of this year. Work is currently underway at pipeline terminals in British Columbia and pump stations in Alberta. Some construction area start dates are still subject to regulatory approvals and permits; however, the pipeline is expected to be online by mid-2022.
- Following the re-approval, the Angus Reid Institute surveyed Canadians’ opinions of the project. While support for TMX among those polled is highest in Alberta (87%), a majority of those in BC (54%) also support it.5 However, it should be noted that a majority of BC respondents also consider “protecting the environment” a bigger priority than “promoting economic growth” when developing Canada’s energy policy.6
- Indigenous Peoples, provincial governments, municipalities, and stakeholders are neither unanimous in their support nor their opposition to TMX:
- Indigenous groups legally challenged the original approval of TMX, arguing consultation was insufficient. The challenge was successful. It led to a second round of consultation before re-approving the project.
- Some Indigenous peoples, the Cities of Vancouver and Burnaby, and various environmental organizations once again legally challenged the re-approval. On September 4, 2019, the Federal Court of Appeal stated that it would hear arguments from six Indigenous groups who contend that consultation between August 2018 and June 2019 was insufficient.
- Many Indigenous groups in BC and Alberta invest in the energy sector and support the pipeline expansion. There has been significant interest in Indigenous ownership of TMX and speculation that the Government of Alberta’s proposed $1 billion “Indigenous Opportunities Corporation” could facilitate an Indigenous stake in the project.
- A number of First Nations in British Columbia oppose the project. They view TMX expansion as further industrialization of the British Columbia land base and coastlines in what they assert is un-ceded territory. They identify as the rightful stewards of these resources and seek to play a more central role in their management.
- The Alberta Government is a vocal critic of federal activities perceived to impede the energy sector, pipeline development and provincial natural resource jurisdiction. In BC, the minority government holds power through an agreement committing them to “employ every tool available to a new government to stop the expansion of the Trans Mountain pipeline.”
- The National Energy Board (NEB) noted TMX will produce considerable economic benefits.7 The project is expected to contribute 7,900 jobs at peak employment, in addition to $5.9 billion in GDP in Alberta and $12.6 billion in GDP in BC within the first 20 years.8 These benefits are critically important to the western economy. However, the NEB also confirmed TMX is an environmental risk, particularly related to oil spills and “significant” adverse impacts to endangered southern resident killer whales.9
- Bill C-69 replaces the NEB with the Canadian Energy Regulator, and the Canadian Environmental Assessment Agency with the Impact Assessment Agency. An implementation date has not yet been determined. While the bill has no material impact on the completion of TMX, the lack of final regulations adds to the uncertainty concerning the future approval standards for natural resource projects.
- Bill C-48, the Oil Tanker Moratorium Act, implements a ban on oil tankers carrying more than 12,500 metric tons of crude oil from stopping or unloading along British Columbia’s north coast from the northern tip of Vancouver Island to the Alaska border and is currently in effect. There is concern in western Canada that Bill C-48 in conjunction with C-69 could challenge future pipeline expansion to the west coast. Bill C-48 is perceived to be particularly discriminatory towards Alberta’s energy industry, given that no tanker bans have been implemented elsewhere in Canada.
- The current lack of pipeline capacity and industry uncertainty around future regulations, legal challenges and carbon emission costs are negatively affecting energy sector competitiveness. Foreign firms have divested more than $30 billion in Canadian energy assets10 in the last three years, while energy investment in Alberta has declined for five years straight.11 The Parliamentary Budget Office estimates that a one-year delay in TMX construction would reduce the final sale price that the Government can negotiate by $693 million.12
- During WD’s Grow West engagement, western Canadians emphasized that access to export markets is essential for sustaining economic growth. Strengthening infrastructure, such as pipelines, is a key priority under the strategy’s trade pillar.
- WD has previously worked with Indigenous communities along the TMX and Line 3 pipeline routes through the Economic Pathways Partnership.13
Footnotes
1 Due to limitations on the availability of specific data on rail shipments by company and product, the figures and statistics referenced are from source company sites as well as those reported in news articles.
3 In 2018, exports of peas and lentils to China and the US increased significantly, making them the top two export markets. Chinese demand for plant based protein has been increasing and they were able to take advantage of lower pulse prices; increased exports to the US were impacted by a drought in 2017 that reduced the US pea harvest.
4 What Now? Canada’s China-Canola Challenge. April 2018. Canada West Foundation.
5 Shovels in the Ground: Majority say Liberals Made Right Decision in Approving TransMountain Expansion. June 2019. Angus Reid Institute.
6 Shovels in the Ground- Data Tables. June 2019. Angus Reid Institute.
7 Ibid.
8 Seeking Tidewater: Understanding the Economic Impacts of the Trans Mountain Expansion Project. Conference Board of Canada.
9 National Energy Board Reconsideration Report: Trans Mountain Expansion. February 2019.
10 The US$30 billion exodus: Foreign oil firms are bailing on Canada. August 2019. Bloomberg News.
11 Provincial Outlook Economic Forecast: Summer 2019. Conference Board of Canada.
12 Canada’s purchase of the Trans Mountain Pipeline – Financial and Economic Considerations. 2019. Parliamentary Budget Office.
13 The Economic Pathways Partnership is a commitment to deliver a whole-of-government approach to make it easier for Indigenous groups to access existing federal programs and services that help them participate in and benefit from business and employment opportunities related to the Trans Mountain Expansion and Line 3 Replacement pipeline projects. The four core departments involved in the EPP are Natural Resources Canada, Indigenous and Northern Affairs Canada, Western Economic Diversification Canada, and Employment and Social Development Canada.
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