Why Mexicans Don't Drink Molson

by Andrea Mandel-Campbell

  Michael Lobsinger, the founder of Calgary-based technology firm Zi Corp., has had to grapple with the halo effect firsthand. In one encounter he will never forget, the Saskatchewan native was meeting with seven major money managers in New York to raise money for his new-found company. The most important manager at the table quickly made it known that he had a “financial philosophy” never to invest in Canadian companies, launching into a long litany of failed ventures. “Sweat started pouring down my face,” recalls Lobsinger. “I turned around and said, ‘Aren’t you a fucking idiot. If you can’t sort the good from the bad, that’s your problem, not mine.’” The manager, perhaps impressed by Lobsinger’s chutzpah, ended up buying half a million shares in the company. Still, he says with not a little frustration, “I get this all the time.”

  Unfortunately, as the failures mount — Molson being the latest, but surely not the last— the onus will increasingly be on Canadians to prove that they are serious, worthy and reliable foreign investors and business partners. That will mean taking a serious look at how they operate in their own backyard — because how one competes at home is a reflection of how one competes abroad. Ultimately, Canadians will have to come to grips with the inherent contradiction in the country’s economic model — one in which protective policies and regulatory environments leave companies ill-prepared to compete internationally because staying home is no longer an option.

  Molson is perhaps the best example of this destructive catch-22. Since merging with Coors in 2005, there is little left of the iconic brewer that has played such an important role in Canadian history. While family scion Eric Molson is chairman of the new entity in which Molson retains a 55 per cent ownership stake, the company is incorporated in Delaware and headquartered in Colorado. The board of directors is stacked with Coors executives, who include the CEO and cfo. If Globe and Mail columnist Eric Reguly is right, Molson’s head office in Montreal will eventually become as superfluous as Seagram’s faux castle in Montreal became once the distiller built its New York headquarters.

  As for The Beer Store — the monopoly that was supposed to protect two national champions — it’s now controlled by foreigners.

  * In 2004 Belgium’s Interbrew, already the owner of Canada’s Labatt breweries, bought Brazil’s Ambev, to become the world’s largest brewery.

  * In 2002, Bell Canada Enterprises, bci’s parent company, also took a $7.5 billion write-down on Teleglobe Inc., the overseas telecommunications provider it had bought from Charles Sirois just two years before for more than $7 billion.

  * La Pocatière is Bombardier’s original subway manufacturing plant, located 370 kilometres northeast of Montreal.

  * In 2000, Naya was bought by the French food conglomerate Danone.

  6 TEAM CANADA AND TEQUILA:

  THE PITFALLS OF GOVERNMENT TRADE

  POLICY, PROMOTION AND FINANCE

  “This is a country that doesn’t think strategically.”

  JOHN GRUETZNER, BEIJING -BASED

  TRADE AND INVESTMENT CONSULTANT

  EXACTLY ONE YEAR after coming to power as Canada’s newly elected prime minister, Jean Chrétien was at the helm of arguably the most ambitious and unprecedented trade mission in Canadian history. For the first time, the prime minister, his cabinet and all the provincial premiers had joined forces under the brash new banner of Team Canada, and they had set their collective sights on landing the biggest fish of all: China.

  Like Pierre Trudeau’s official recognition of China in 1970— a full two years before the United States did so — the November 1994 trade mission was a pre-emptive strike that acknowledged the emerging powerhouse. The mission had vision and moxie, and it made a powerful statement to the world that Canada was ready to do business. And the world seemed to be listening. Chrétien and Team Canada hosted a glittering gala at Beijing’s historic Great Hall of the People, the biggest event put on by a foreign country in recent Chinese memory. “There was a real buzz in the room,” recalls Tim Reid, then president of the Canadian Chamber of Commerce. “The atmosphere was so friendly. We were so well received.”

  The Chinese were anxious to meet the people who had given them Norman Bethune, the beloved Canadian doctor who had treated the wounded during China’s bitter war with Japan, and representatives of the nation that, in open defiance of a U.S. trade embargo, shipped them wheat during the years of starvation in the 1960s. In the 1970s Ottawa arranged for two planeloads of Canadian businesspeople to fly to Beijing and exhibit their technology, a move that proved instrumental in China’s decision to end its decades of self-imposed isolation. Perhaps it was no surprise, then, that companies on the Team Canada mission claimed to have sealed $9 billion worth of contracts and letters of intent with Chinese eager to do business with them.

  So why is it, more than a decade later, after the rest of the world has woken up to the Chinese juggernaut, that Canada has missed the boat? Canadian exports to and investment in China remain negligible, while decades of goodwill have lost their lustre as Mao Zedong’s famous ode to Norman Bethune is eclipsed by the stampede of foreign multinationals jostling for a toehold in China.

  Many argue, and rightly so, that Canadian business is largely to blame for not following up on the government’s lead. It would not be the first time. As long ago as 1920, Canada’s trade commissioner to China lamented: “Canada has had direct steamship communication with China from the port of Vancouver for more than thirty years, yet in all that time not a single Canadian business firm have established themselves or had agents in this country.”103 In contrast, the government agent pointedly noted, there were sixty American firms in China at the time.

  Still, one has to wonder what kind of path Ottawa was paving for business into one of the world’s murkiest markets. Despite the historic ties and oodles of camaraderie, the Team Canada effort never translated into any tangible trade preferences or policies. At the time of writing, Canada had yet to sign a foreign-investment protection agreement with the Chinese, an important legal recourse for would-be investors that a number of other countries have clinched. Formal ties are limited to a limp-wristed “strategic partnership” that pales alongside ambitious gambits by Chile and Australia to strike free-trade deals.* Was Team Canada really lighting the way, or was it just digging a road to nowhere?

  As Roy MacLaren, Canada’s former trade minister, recalls it, Chrétien evinced little interest in the Team Canada concept when he first broached the idea with the prime minister. It wasn’t until MacLaren mentioned that the ten premiers would be coming along that Chrétien suddenly perked up. The idea of having the premier of Quebec walking behind him, in lockstep with the other provincial leaders in a joint trade promotion effort for all the world to see, was immensely appealing to the pm. Even Team Canada, like so many other things, was partly seen as another tool in the pitched battle with Quebec separatists.

  Over the next decade, the success of the first Team Canada trade mission to China would spawn dozens more junkets throughout Latin America, Europe and Asia. Like a travelling road show, they would repeat the same performance in every new venue, and often, as in the case of China, return for an encore. But seen as they were, through the narrow prism of the national-unity debate, the missions only gave the most perfunctory nod to the more pedestrian issues of trade barriers and investment protection.

  “In the Team Canada missions to China† we did not talk about policy or trade obstacles with the Chinese,” says MacLaren. “So we were in and out, in and out, without ever laying the groundwork for the future. And it turned into a sort of government circus of signing contracts.”

  Rather than being an inadvertent hiccup, however, the sacrificing of far-reaching international objectives on the altar of domestic politics is an enduring hallmark of Canada’s deeply flawed trade policy. Slapdash strategy and political short-sightedness were largely responsible for the failure of Prime Minister Pierre Trudeau’s highly vaunted “Third Option,” which sought to counterbalance Canada’s dependence on
the United States by strengthening ties with Europe and Japan. More of a reaction to the Nixon administration’s 1971 decision to tax imports than a deliberate, thought-out offensive, Trudeau’s short-lived exercise was plagued by bureaucratic infighting and incoherent policy. By 1976, Trudeau had turned his attention to the looming crisis in Quebec and the international effort was all but forgotten.

  It’s a legacy that lives on in the country’s failure to capitalize on competitive advantages and aimless efforts at promoting trade that in many cases have done a disservice to Canadian business and damaged the country’s reputation abroad. “We have never had a coordinated trade policy,” says Peter Clark, an Ottawa trade consultant. “Our trade policy is responding to crisis. It’s ad hocery in the extreme, and it always has been.”

  Nowhere is Canada’s filibustering perhaps more in evidence than in Europe. Despite historic trade and cultural ties, Canada remains one of just eight countries without preferential trade access to the world’s largest trading bloc. It was the first country to broach the idea of a trade deal with Europe in 1972, but over the next two decades its bold overture was drowned in a sea of high-minded but toothless contractual links, political dialogues, transatlantic declarations and joint action plans. The Europeans, some say, have never been interested in a real trade deal with Canada. But just what has Canada done to convince them otherwise?

  In 1994, with the ink barely dry on NAFTA, MacLaren began pushing for a North America–EU free-trade deal. But just as he began shuttling across the Atlantic for exploratory talks in London, Paris, Bonn and Geneva, Canada’s fisheries minister, Brian Tobin, was ordering the arrest of a Spanish fishing trawler in international waters off the Grand Banks. It was an unprecedented move for the normally compromising Canadians, who charged that they had to defend depleted fish stocks from European overfishing. Tobin, dubbed “Captain Canada” in the ongoing Turbot War, won the hearts of Atlantic Canadians and the enduring ire of the Spaniards.

  While Canada’s attempt at gunboat diplomacy conveniently deflected attention from its own egregious overfishing, what was even more interesting was the unwavering support Tobin enjoyed from Prime Minister Chrétien. There was no vacillating here, despite the clear breach of international law, the very minor role of the already moribund fishery in the Canadian economy or the cost in terms of Canada–eu relations. And the costs were high. Any chance for a free-trade agreement was scuttled by the Spaniards, who froze the Canadians out of ministerial meetings and high-level talks.

  “It was badly handled,” confides a high-ranking Ottawa insider. “Brussels went bananas; they went haywire over the fishing dispute. If there was any indication that Canadian trade relations with Europe showed signs of improving, Spain would step in.”

  Luckily for Canada, the Americans weren’t ready for free trade with Europe. But that didn’t stop the Mexicans, who went on to sign a deal with the eu, becoming the only NAFTA partner with a transatlantic trade tie.

  Amazingly, despite the diplomatic kerfuffle, Canada got a second chance at a free-trade link-up with Europe. In 1998, talks were launched with a bloc of four countries — Norway, Switzerland, Liechtenstein and Iceland, which make up the European Free Trade Association and are outside the EU zone. It was an opportunity for Canada to redeem itself and prove to the rest of Europe that free trade, particularly in agricultural products, was not only possible, but beneficial.

  A decade later the proposal is technically still on the table, but talks floundered almost immediately thanks to an encore performance by Captain Canada. The cabinet minister from Newfoundland and Chrétien dauphin pushed through subsidies on Canada’s virtually non-existent shipbuilding industry. The Norwegians, among the world’s leading shipbuilders and ship owners, were nonplussed. The incipient negotiations died on the vine.

  So why would the prime minister allow a fisheries minister to stymie potentially groundbreaking trade deals with the Europeans not once, but twice? For two reasons, say veteran Ottawa bureaucrats. Chrétien’s principal concern was to “keep a lid” on regional bones of contention, arguably at whatever cost. More importantly, he was grooming Tobin as a rival to his arch-nemesis, Paul Martin, for the leadership of the Liberal Party. Both cases provided Tobin with a platform to not only raise the Newfoundlander’s political profile, but to provide him with an instant following.

  “Chrétien let Tobin introduce the shipbuilding subsidies because he thought Tobin would be a rival to Martin’s leadership bid,” said one insider. “The Norwegians said, ‘What’s this — free trade, and you’re subsidizing shipbuilding?’ Ottawa’s reaction was, ‘Well, that’s too bad for them.’”

  Considering Ottawa’s dismal record on trade deals, however, Canada appears to be the real loser. Since 2000, Canada has dabbled in a host of free-trade negotiations with Singapore, Central America, the Andean region and Caribbean countries like Jamaica and Dominican Republic. Yet despite the relative obscurity of most of these markets, Ottawa has failed to sign a single deal. In fact, since NAFTA, Canada has racked up just three pacts, with Chile, Costa Rica and Israel. “Since NAFTA there has been virtually nothing,” says Derek Burney, a former ambassador to the United States and NAFTA negotiator. “We never thought, at the time, that would be it. For a country as dependent on trade as Canada is, it’s enormously shortsighted.”

  The United States, meanwhile, has since gone on to clinch eight deals with thirteen more countries, including Singapore, Central America, Australia and Bahrain,* and has another half dozen in the works. The American initiative is part of a global uptick in bilateral trade pacts and regional trading blocs in the face of flagging multilateral trade liberalization and a growing desire by emerging nations like China and India to flex their newfound economic muscle. Mexico has thirty-two bilateral agreements under its belt, including one with Japan, a tie-up that Canada has half-heartedly pursued for years. “We’re even behind Peru,” notes Glen Hodgson, chief economist at the Conference Board of Canada. “They have a free-trade agreement with Korea.”

  Supposedly Ottawa has hung its hat on multilateral free-trade efforts under the World Trade Organization (wto). But while paying lip service to freer global markets, Canada actively undermined its own influence in the latest Doha round of negotiations in 2006 by refusing to ease protections on its supply-managed dairy, poultry and egg industries. As a result, Ottawa, one of the multilateral system’s original heavy hitters, was shut out of high-level negotiations and replaced by Australia, with a gdp about half that of Canada’s. A foil to Canada’s feeble efforts, Australia has aggressively pursued multilateral trade liberalization while seeking out bilateral agreements. Since 2002, it has signed deals with the United States, Singapore and Thailand and is now brokering deals with Japan, China and the ten-member Association of Southeast Asian Nations (ASEAN), which is looking to establish a free-trade bloc to rival NAFTA and the eu.

  “Canada has withdrawn from the international trade scene. We’re no longer a significant player,” says MacLaren. “We have been superseded by the Australians while the U.S. has suddenly signed half a dozen bilateral free-trade agreements, and they don’t depend on exports to the degree we do. There needs to be a real shift. There is no policy, no nothing, coming out of Ottawa.”

  The main back-up plan appears to be Ottawa’s “new and emerging markets” strategy, a wishy-washy campaign targeting India, China and Brazil, that has the leaders of these much larger countries rolling their eyes. “It’s a joke to them — they think it’s funny,” says trade consultant Peter Clark. “How can you call Brazil an emerging market?” The irony has not been lost on India and China either, which together represent a third of the world’s population and are among its oldest civilizations. The special minister appointed to head up the initiative — first an Ontario lawyer and then a vegetable farmer from Cape Breton, neither with prior experience in the area — only confirmed the dilettantish effort.

  Undeterred, the federal government has exhorted Canadian business to inves
t in these waking giants while trying to coax the Chinese into buying into everything from Alberta’s oil sands to pulp and paper. Yet the crucial details and overarching strategy continue to elude officials, leaving the countries in question perplexed. Weeks after Paul Martin headed his first mission to China as prime minister, the Canadian embassy in Beijing refused travel visas for more than fifty Chinese businesspeople invited to attend a government-sponsored export fair in Vancouver. The reason? The government didn’t believe they had a legitimate reason to come to Canada.

  In 2003, the same year that Ottawa unveiled its emerging-markets strategy, it closed the Canadian tourism office in São Paulo, Brazil’s largest city. Still, Paul Martin headed up a trade mission the following year, promising to renew long-neglected bilateral ties. Despite the Canadians’ confusing signals, the Brazilians pursued a trade agreement with Canada and sent negotiators to Ottawa in September 2005 offering a bilateral deal with Mercosur, the customs union comprising Brazil, Argentina, Uruguay and Paraguay. They were politely rebuffed. In an interview, former international trade minister Jim Peterson explained that, among other things, Canada was still waiting to see what would happen with the latest wto trade round as well the Free Trade Area of the Americas, which Venezuelan president Hugo Chávez had declared “dead” the week before.

  “There is a lack of cohesion between what the government says and what it does,” says James Mohr-Bell, executive director of the Brazil–Canada Chamber of Commerce. “When you talk and then don’t do anything, people become uneasy. When you talk and do the opposite, then you lose your credibility altogether.”