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What’s happened to Canada’s manufacturing sector? Kellogg’s recent decision to close its plant in London ripped another 500 factory jobs away from Ontario. That follows Heinz’s move to shutter its plant in Leamington, which is near Windsor. The 100-year-old plant, and its 740 employees, was the largest employer in the area. The announcement from Heinz comes on the heels of plant closures by Caterpillar, CCL Industries, and Novartis. Added up, and Ontario, home to what’s left of Canada’s industrial heartland, has shed 33,000 manufacturing jobs in the last year.
While the recent plant closures have grabbed headlines, it’s only a fraction of the jobs lost over the last decade. Once the top employer in Ontario, the manufacturing sector is now a shadow of its former self.
Since 2002, Ontario’s manufacturing sector has shrunk by nearly 30 percent—or more than 300,000 jobs. The story is similar when you look at real manufacturing output, which is down almost 20 percent over the same time.
Look back to the 1990s, or indeed most of the post-war period, and manufacturing could be counted on as an engine of economic growth for the province. Today, the opposite is true. The shrinking sector is a drag on growth and part of the reason Ontario’s economy has been a laggard versus other provinces over the last decade.
It’s unfamiliar territory for Ontario, historically the principle cheque writer of equalization payments to the poorer provinces in the Confederation. Not so anymore. The income-per-capita in what was once Canada’s most affluent province is now well below the national average. Ontario’s economic standing among other province’s, similarly, is also on the decline. The province’s share of Canadian GDP is down by roughly 5 percentage points in the past ten years.
It’s not a coincidence that manufacturing employment in Ontario peaked in 2002, just as a free falling Canadian dollar was plunging to nearly 60 cents against the U.S. greenback. Backed by that exchange rate, everyone from auto assemblers to food processors enjoyed a commanding cost advantage over competing plants south of the border.
Since then, the Canadian dollar has soared along with the rising price of oil. While the loonie has long moved to the rhythms of commodity prices, in the last decade it’s danced in lock step with oil prices, which have marched from $20 a barrel to the triple-digit range. These days the loonie is trading more than 50 percent higher than it was during the last peak in manufacturing employment in Ontario.
In the context of exchange-adjusted labour costs rising by more than 50 percent, there’s really no mystery behind why so many manufacturing plants are closing in Ontario. Offsetting such a dramatic swing in exchange-adjusted wage costs would take a boom in productivity that, frankly, just isn’t in the cards.
What’s worse, productivity in the manufacturing sector is actually languishing. In theory, a higher Canadian dollar should make it easier for plants to import machinery and equipment that will enhance productivity. The theory, however, assumes that plants will continue to run. In practice, a soaring loonie is spurring international manufacturers to look for greener pastures elsewhere. Instead of spending money in Canada to improve factory productivity, decisions are being made in the opposite direction, which is resulting in disinvestment.
The numbers speak for themselves. In the last decade, the manufacturing sector’s share of business investment is down by nearly half, falling from 14 percent to as little as 8 percent. Without capital spending on new plants and equipment, productivity growth is going nowhere. That, in turn, only exacerbates the competitive disadvantage that a high Canadian dollar puts on wage costs.
Where to from here? With the loonie trading in the 95-cent range against the greenback, who’s choosing to invest in boosting the productivity of an uncompetitive manufacturing sector?
Consensus is forming that 2014 will be the economic turning point for the United States and that is, traditionally, good news for Canada. But is it?
Most rosy is the forecast by UBS that U.S. GDP will grow by about 3 per cent in 2014 and in 2015 then beyond. The IMF has also just raised its U.S. forecast.
“There has been good action taken by Congress to eliminate the fear about the budget and to reduce the sequestration. We see the Fed having taken some very well-communicated action concerning the tapering of the program, and those are good signs — in addition to which we see some good numbers: Growth is picking up and unemployment is going down,” head of the IMF Christine Lagarde said this week. “So all of that gives us a much stronger outlook for 2014, which brings us to raising our forecast.”
Interestingly, if the United States grows by 3 percent that will virtually match China’s growth, in absolute dollars. (Lest we forget the math. A 3 percent rate in the U.S. is based on a nominal GDP of US$17-trillion and China’s equally rosy forecast of 7.5 percent is based on a nominal GDP of less than US$8-trillion.)
The turning point has come due to the energy boom in the U.S., the housing recovery, the health of its manufacturing sector and productivity rates, banking stability, job growth, low consumer debts and an improved fiscal situation due to the spending cuts imposed by sequestration.
Canada, unfortunately, has some headwinds that, until addressed, will likely decouple Canada’s growth from its neighbour’s in the short and medium term.
Here they are, not necessarily in order of importance:
— Canada lives beyond its means as an economy, with trade and export deficits, despite the benefits of high commodity prices in the past few years.
— Canada’s productivity lags U.S. rates considerably, representing a negative metric that makes export growth difficult. The reasons are varied and include the fact that the Canadian economy is balkanized into political spheres of influence, variant tax and labour laws, non-tariff barriers internally and disparate worker credentials because it lacks a national trade agency to insure the fair flow of workers, goods and services or an over-arching Inter-provincial Commerce Commission. There is no free trade within Canada.
— Canada’s dollar is headed to as low as 88 cents U.S. this year, according to some projections, which is a symptom of problems but also, ironically, somewhat helpful in exports if sustained but not helpful concerning the following issue.
— Canada’s federal and Western provinces are pitch-perfect when it comes to debt levels, spending and investment. Their Triple A or high AA credit ratings reflect that.
But Eastern Canada, on the other hand, is a problem, a clearly defined have-not part of the country with high unemployment rates, high underemployment rates and spendthrift provinces led by Ontario which has the biggest debt of any sub-national government globally. In 2003-4, debts were C$140-billion and in 2013-14 are expected to reach $260-billion and heading higher.
So this means that as the Canadian dollar falls, repayments to foreigners increase as does the need for the Bank of Canada to begin increasing interest rates. The only solution is to bite the bullet, something that vote-hungry politicians have failed to address in the past.
In light of that realization, Goldman Sachs and others are shorting the Canadian dollar.
— Consumer debt is Canada is worrisomely high. The housing bubble in Ontario, condo craziness, has forced prices for all real estate upwards, and increased borrowing, with the result that Canadians now have switched places with the Americans as holders of the highest consumer debt. (Americans were forced to shed their borrowing after the 2008 meltdown but Canadians continued the tradition.)
(This debt overhang will slow consumer spending in Canada, but the newly lower debt levels south of the border are expected to enhance U.S. growth in the next few years.)
— Canada’s cornerstone exports are facing declines. Natural gas is being replaced by U.S. shale gas production. Crude oil, Canada’s most valuable export, is expected to drop in price $20 a barrel due to increasing supplies: the U.S. shale oil boom, Canada’s increasing production, a relaxation of the embargo against Iran if it fulfills its pledges on the nuclear portfolio and Mexico’s invitation to foreign oil companies to help increase production for its moribund national oil giant.
The one bright spot would be approval, finally, of the Keystone Pipeline, with its 800,000 barrels a day of exports. Another would be the Northern Gateway proposal to the B.C. coast.
But both are political footballs for different reasons and may not happen for years, if ever.
The Iranian diplomatic deal, if successful, could enhance world peace but would unleash much oil onto the market. The embargo has limited exports from 2.5 million barrels per day to one million.
The other important export driver in Canada is Ontario’s auto industry but this year the province was overtaken, in terms of production, by the state of Michigan for the first time in a decade. And Ward’s Automotive forecasts a steady decline in Ontario production.
On a positive note, most of Canada’s problems are soluble if electorates, and their public servants, agree to old-fashioned belt-tightening.
Most importantly, Canada has to stop signing free trade agreements with countries that don’t offer reciprocity in terms of export or investment opportunities, such as China and/or the European Union, and forge a Canadian Free Trade Agreement among its provinces and territories. And the US-Canada bi-national issues should be fixed and talks about a development partnership in the North should become policy.
But those are long-term solutions that have eluded Ottawa for generations.
In the meantime, just curbing the excessive growth and overheads of the entire Canadian public sector, and creating a healthy, fair market at home for the Canadian private sector, are bottom-line essentials that any nation-state must enact in order to protect and grow.
OTTAWA – Wait until next year.
It’s a familiar refrain for sports teams, but the premise is getting old for Canadians awaiting the return of an economy that can be counted on for jobs, solid incomes and financial security.
As far back as 2010, the Bank of Canada held out the prospect of better times in the year ahead. But unexpected events — whether it was a tsunami in Japan, a debt crisis in Europe, or political shenanigans in Washington — always took the shine off the optimism.
“If you were looking for a theme song for the Canadian economy, it would either be ‘With a Little Help from my Friends,’ or, alternatively, Led Zeppelin’s ‘The Song Remains the Same,’ ” says Craig Alexander, TD Bank’s chief economist.
He says we’re still waiting for a hand-off from consumer-driven growth.
“We are going to eventually get this rotation toward exports and business investment and away from real estate and consumer spending. We said that would happen in 2013. It didn’t happen. Now we’re saying it is going to start next year,” Alexander said.
TD, like the Bank of Canada and a consensus of economists, is estimating growth will rebound to about 2.3 per cent in 2014. That would follow two years of sub-par growth at 1.7 per cent in 2012 and an estimated 1.7 per cent growth this year.
The improvement foreseen for 2014 is not much of a bump and won’t lead to massive job creation and steep income growth. But the difference between 1.7 per cent and 2.3 per cent is important.
The Bank of Canada believes economy has the “potential” to grow about two per cent. At 1.7 per cent, the economy has underachieved its potential whereas, at 2.3 per cent, the economy can eliminate slack and head toward full recovery.
The central bank thinks 2015 will see the gap close further with 2.6 per cent growth, enabling the economy to return to health by the middle or the end of that year.
The other important distinction is the composition of growth.
According to the central bank and others, 2014 will be the year the economy finally enters the zone of what Bank of Canada governor Stephen Poloz calls self-generating, self-sustaining “natural growth.”
That is critical because Canada, for the past three years, has experienced a kind of un-natural recovery.
Yes, it has recouped all it lost during the recession in terms of output and jobs, but a persistently low inflation reading and continuing slack in production capacity suggest something has not been quite right.
Growth was achieved primarily at first because federal and provincial governments pumped tens of billions of dollars into the economy — all of it borrowed.
The Bank of Canada — as well as its U.S. counterpart — has also kept interest rates at or near rock bottom, encouraging businesses and households to borrow money and spend.
Snatch away the stimulus measures and Canada, some say, would most likely still be in recession.
CIBC chief economist Avery Shenfeld there was nothing fundamentally amiss about Canada’s domestic economy before 2008 when the world’s financial system was dealt a severe blow by a meltdown in the U.S. real estate, which spread to banking and other industries.
While Canada’s economy initially emerged from the 2008-9 global recession in relatively good shape, it has limped along more recently amid weakened demand for many of the country’s major exports.
“Part of the reason Canada hasn’t seen the lift in capital business spending is because the rest of the world has disappointed us,” Shenfeld said.
“Interest rates have been low, financing has been available, but unless you are sure the product demand is going to be there, it’s hard to trigger a boom in capital spending. So a brighter global economy could see a return in capital spending in the resource in sector, which is part of that rotation that’s been missing.”
That’s where a little help from our friends, particularly the United States where 75 per cent of exports end up, will go along way to curing Canada’s ills, say analysts.
Optimism for 2014 is tied to how quickly the U.S. recovers and how much that boosts Canadian exports. The Royal Bank is among the most optimistic, pencilling in a 2.6 per cent expansion next year, and 2.7 the year after that, which will more quickly close the output gap and get the Bank of Canada to raise interest rates in 2015.
Exporters will also benefit from a swooning loonie, analysts say, because, by comparison, the U.S. economy will outperform Canada’s. The loonie has already lost about six per cent in value in the past year and now hovers around 94 cents US. By many estimates, it could be at least as low as 90 cents by the end of 2014.
With all these factors in Canada’s favour, it’s a wonder the economy won’t do better. But the Bank of Canada has noted that exporters haven’t kept pace, given the rebound in the United States, so they won’t likely benefit as much in 2014 as they have historically.
Part of the reason, says governor Poloz, is that the country lost about 9,000 exporting companies in the aftermath of the 2008-09 recession.
Alexander, TD’s chief economist, lists other factors: an increase in the number of right-to-work states in the U.S. that have brought down labour costs; a shale oil and gas revolution; and low gas prices that have decreased energy input costs for a lot of U.S. manufacturers.
“And we’ve had really strong productivity growth in the U.S.,” Alexander added. “So U.S. manufacturing is far more competitive than it was before and that makes it much tougher for Canadian exporters.”
The consensus view assumes that the modest pick up in exports, which will lead to companies investing in machinery and equipment in order to become more competitive exporters, won’t be counterbalanced by a retrenchment in the household sector and in housing.
Taking the contrary view, as does David Madani, the chief analyst at Capital Economics, leads one to the conclusion that 2014 won’t be any different from 2012 and 2013 in terms of aggregate economic growth — even if the composition is healthier.
With the housing market overbuilt and household debt at record levels — 164 per cent of annual aftertax income — Madani expects a bad year for the construction industry and a slowdown in consumer spending, which makes up the majority of the economy.
“So you have a situation where weakness in housing and slower household consumption growth is now offsetting the improvement in exports and perhaps business investment,” Madani says.
Rather than improving, Madani thinks the economy will deteriorate further to 1.5 per cent growth, which may cause the Bank of Canada to cut interest rates further and even push Finance Minister Jim Flaherty off his austerity drive — although he admits that’s a long shot.
Madani’s advice. Wait till next year and, by next year, he means 2015 or even 2016. By then there will have been a correction in housing and global demand may be strong enough to make more of a difference to Canada.
TORONTO – Canada’s spy agency deliberately withheld information from the courts in an effort to do an end-run around the law when it applied for top-secret warrants to intercept the communications of Canadians abroad, a Federal Court judge said Friday.
In doing so, the judge said in written reasons, the agency put Canadians abroad at potential risk.
The situation arose five years ago when Canadian Security Intelligence Service asked Federal Court for special warrants related to two Canadian citizens — already under investigation as a potential threat to national security — that would apply while they were abroad.
CSIS assured Judge Richard Mosley the intercepts would be carried out from inside Canada, and controlled by Canadian government personnel, court records show.
Mosley granted the warrants in January 2009 based on what CSIS and Canada’s top secret eavesdropping agency — the Communication Security Establishment of Canada or CSEC — had told him.
However, Canadian officials then asked for intercept help from foreign intelligence allies without telling the court.
Mosley was unimpressed, saying the courts had never approved the foreign involvement.
“It is clear that the exercise of the court’s warrant issuing has been used as protective cover for activities that it has not authorized,” Mosley wrote in redacted reasons.
“The failure to disclose that information was the result of a deliberate decision to keep the court in the dark about the scope and extent of the foreign collection efforts that would flow from the court’s issuance of a warrant.”
Under current legislation, Federal Court has no authority to issue warrants that involve intercepts of Canadians carried out abroad by Canada’s “Five Eyes” intelligence partners, Mosley noted.
He said CSIS, which was granted several similar warrants on fresh or renewed applications in relation to other targets, knew the law but deliberately sought to get around the limitation by misinterpreting it.
“CSIS and CSEC officials are relying on that interpretation at their peril and… incurring the risk that targets may be detained or otherwise harmed as a result of the use of the intercepted communications by the foreign agencies,” Mosley wrote.
“(The law) does not authorize the service and CSEC to incur that risk or shield them from liability.”
The documents show alarm bells went off after the commissioner of CSEC, Robert Decary, tabled his annual report in August.
In the report, he suggested CSIS provide Federal Court with “certain additional evidence about the nature and extent” of his agency’s help to the intelligence service.
Mosley ordered both agencies to explain what Decary meant. He did not like what he heard about the hidden foreign involvement in the intercepts.
“This was a breach of the duty of candour owed by the service and their legal advisers to the court,” he said.
“It has led to misstatements in the public record about the scope of the authority granted the service.”
Mosley made it clear the warrants do not authorize any foreign service to intercept communications of any Canadian on behalf of CSIS or CSEC.
Credit-monitoring agency TransUnion says the non-mortgage debt of Canadians is likely to set a record next year.
In its first such annual forecast, TransUnion predicts the average consumer’s total non-mortgage debt will hit an all-time high of $28,853 by the end of 2014.
That would be about $1,100 more than the $27,743 of debt consumers are expected to have at the end of this year.
TransUnion says car loans are expected to drive the increase in such debt, which also includes credit card debt, lines of credit, student loans and the like.
On the plus side, the credit-monitoring agency says it expects loan delinquency rates to continue to decline in the coming year, falling to 1.66 per cent at the end of 2014 compared with 1.76 per cent forecast for the fourth quarter of this year
Both figures are down from 1.93 per cent in 2012 and 2.87 per cent in 2009.
“The average Canadian consumer’s total debt is expected to rise by four per cent in 2014, which would be more than $4,500 higher than what we had observed five years earlier in 2009,” Thomas Higgins, TransUnion’s vice-president of analytics and decision services, said in the report.
Higgins noted that while the 2014 increase is much greater than the expected one per cent rise in 2013, it is in line with consumer debt growth of recent years.
“In recent years, the increase in auto sales has helped propel the total debt number and we believe auto captive loans will once again be a driver of this increase in 2014,” he said.
“Instalment loans also have played a major role and we don’t expect there to be a material change in this trend,” he added.
While TransUnion expects delinquency levels to drop next year and remain significantly lower than just a few years ago, “there is a slight concern that delinquencies could rise once interest rates increase,” Higgins said.
However, he added that at this time “we do not believe interest rates will rise enough to materially impact delinquency levels.”
Just weeks after investment bank Goldman Sachs advised clients to bet against the loonie, global currency traders appear to be doing just that.
Bets against the loonie surged by more than a third in one week, the Globe and Mail reports. According to numbers from the U.S. Commodities Futures Trading Commission, there were $5.4 billion in short positions against the Canadian dollar last week, up by $1.5 billion in a week.
That’s the highest number of bets against the loonie since last spring, when short positions against the currency hit an all-time high.
There are numerous reasons analysts expect the loonie to keep falling, chief among them weakness in resource prices. Canada’s dollar generally tracks commodity prices.
In its report, Goldman Sachs noted that Canada has had a trade deficit — which normally means a declining currency — for the past five years. But the country avoided a sinking loonie because of the strength of its financial system, which attracted a lot of foreign investor money.
That foreign investment has now hit the brakes, Goldman Sachs said, and that’s reflected in a declining Canadian dollar.
A weaker dollar could be bad news for cross-border shoppers and people traveling abroad during the holiday season. Some travel companies are already considering slapping a “currency surcharge” on the price of package vacations. Many of these companies’ costs are in U.S. dollars.
But what’s bad news for travelers could be good news for retailers, who can expect to see more shopping at home if prices in the U.S. are higher for Canadians.
The loonie has been on a downward trajectory for much of the year, hitting its high point for 2013 in January, at above $1.01 U.S., before declining to around the 94-cent U.S. mark in recent weeks.
Canadians’ debt ratio increased last quarter, but so did the value of their assets, so the national net worth increased. (The Associated Press)
The amount that Canadians owe compared to their disposable income rose to an all-time record last quarter, although their net worth also increased.
Statistics Canada reported Friday that the level of household credit market debt to disposable income increased to 163.7 per cent in the third quarter from 163.1 per cent in the second quarter.
That means Canadians owe nearly $1.64 for every $1 in disposable income they earn in a year.
‘The seasonal bounce in mortgage borrowing in the previous quarter picked up into the fall’– Royal Bank economist Laura Cooper
Policymakers are fixated on the debt ratio in part because it was at above 160 per cent that households in the United States and Britain ran into trouble about five years ago, contributing to defaults and the financial crisis that triggered the 2008-09 recession.
Debt loads can be influenced by seasonal factors, and although the headline figure is higher, the rate of growth in that ratio was the smallest in 12 years.
“Those figures should be encouraging for policymakers and suggest that the Bank of Canada’s belief that imbalances are evolving constructively is right on the mark,” said Benjamin Reitzes, a senior economist with BMO Capital Markets.
Indeed, while they are borrowing more, Canadians are also worth more as their assets increase by a similar amount. The national net worth increased to $7.5 trillion in the third quarter, up 2.1 per cent from the previous quarter.
On a per capita basis, that works out to $212,700 for every Canadian. The previous quarter, that figure was $208,300.
Canadians saw their financial assets go up in value, as well as their non-financial assets (such as houses) do the same. The value of shares and other equities gained 3.7 per cent in the quarter, while the value of household real estate gained 1.5 per cent.
“The pace of debt accumulation picked up slightly in the third quarter as the seasonal bounce in mortgage borrowing in the previous quarter picked up into the fall,” Royal Bank economist Laura Cooper said.
With files from The Canadian Press
Falsely Stated That There Were No Unusual Radiation Levels
They’ve cut way back on radiation monitoring after the Fukushima meltdown, underplayed the amount of radiation pumped out by Fukushima, and raised acceptable radiation levels … rather than fixing anything.
For example, Straight.com reports:
A study by several researchers, including Health Canada [the department of the government of Canada with responsibility for national public health] monitoring specialist Ian Hoffman, reveals a sharp spike in radiation over southwest B.C. on March 20, 2011.***
In 2011, investigative journalist Alex Roslin reported in the Georgia Straight that a Health Canada monitoring station in Sidney had detected radioactive iodine-131 levels up to 300 times normal background levels.
In 2011, Health Canada was declaring on its website that the quantities of radiation reaching Canada did not pose any health risk to Canadians.
“The very slight increases in radiation across the country have been smaller than the normal day-to-day fluctuations from background radiation,” Health Canada said at the time.
Roslin maintained in his article that Health Canada’s own data contradicted that assertion. Below, you can see more of what the researchers stated in the PowerPoint presentation about the radiation plume.
Here’s what Roslin wrote in 2011:
After Japan’s Fukushima catastrophe, Canadian government officials reassured jittery Canadians that the radioactive plume billowing from the destroyed nuclear reactors posed zero health risks in this country.
In fact, there was reason to worry. Health Canada detected large spikes in radioactive material from Fukushima in Canadian air in March and April at monitoring stations across the country.
For 22 days, a Health Canada monitoring station in Sidney detected iodine-131 levels in the air that were up to 300 times above the normal background levels. Radioactive iodine levels shot up as high as nearly 1,000 times background levels in the air at Resolute Bay, Nunavut.
Meanwhile, government officials claimed there was nothing to worry about. “The quantities of radioactive materials reaching Canada as a result of the Japanese nuclear incident are very small and do not pose any health risk to Canadians,” Health Canada says on its website. “The very slight increases in radiation across the country have been smaller than the normal day-to-day fluctuations from background radiation.”
In fact, Health Canada’s own data shows this isn’t true. The iodine-131 level in the air in Sidney peaked at 3.6 millibecquerels per cubic metre on March 20. That’s more than 300 times higher than the background level, which is 0.01 or fewer millibecquerels per cubic metre.
“There have been massive radiation spikes in Canada because of Fukushima,” said Gordon Edwards, president of the Canadian Coalition for Nuclear Responsibility.
“The authorities don’t want people to have an understanding of this. The government of Canada tends to pooh-pooh the dangers of nuclear power because it is a promoter of nuclear energy and uranium sales.”
Edwards has advised the federal auditor-general’s office and the Ontario government on nuclear-power issues and is a math professor at Montreal’s Vanier College.
Similarly, the Nelson Daily reported in 2012:
The Green Party of Canada said despite public concern over fallout from the nuclear disaster in Fukushima, Health Canada failed to report higher than normal radioactive iodine levels in rainwater.
“We were worried that this important information would not reach the public and unfortunately, it looks as if we were right,” said Green Leader Elizabeth May, MP for Saanich Gulf Islands in a written press release.
It has now been revealed that data were not released from a Calgary Health Canada monitoring station detecting levels of radioactive iodine in rainwater well above the Canadian guideline for drinking water.
This isotope was known to be released by the nuclear accident and also showed up in tests in Vancouver, Winnipeg and Ottawa. Lower levels of contamination resulted in a don’t-drink-rainwater advisory in Virginia.
“Serious questions are arising about how Health Canada tests for radiation, and why it has failed to properly alert the public,” said May.
“In effect, Health Canada has not allowed Canadians to take any preventative steps to reduce our exposure to this radiation.”
NSA considered spying on Canadians without this country’s consent, top-secret directive says | National Post
OTTAWA — The U.S. National Security Agency considered spying on Canadians without the knowledge or consent of its intelligence partners in this country, according to a top-secret draft NSA directive.
The 2005 memo, leaked to The Guardian newspaper by former NSA contractor Edward Snowden, details how the NSA considered “unilaterally” targeting the citizens and communication systems of Canada, Australia and New Zealand. The countries are part of the “Five Eyes” intelligence-gathering pact that also includes the U.S. and United Kingdom. The directive refers to partner nations as “second-party” countries.
“Under certain circumstances, it may be advisable and allowable to target second party persons and second party communications systems unilaterally when it is in the best interests of the U.S. and necessary for U.S. national security,” says the directive, classified as “NF” for No Foreign and is titled Collection, Processing and Dissemination of Allied Communications.
“Such targeting must be performed exclusively within the direction, procedures and decision processes outlined in this directive.”
The document states the proposed U.S. spying on its Five-Eyes partners can take place even when the partner government has explicitly denied the U.S. permission to do so, says The Guardian. “The memo makes clear that partner countries must not be informed about this surveillance, or even the procedure itself.”
In a later part of the draft cleared for release to the Five-Eyes countries, the document suggests there may be circumstances in which Canada, Australia and New Zealand should co-operate to allow the U.S. to target their citizens.
The public release of the directive is part of a series of calculated leaks over the past year in which Snowden has exposed a vast campaign by the NSA, assisted by Five-Eyes partners, to snoop on U.S. and global electronic communications in the name of counter-terrorism.
“The slow release of secret documents by Snowden [via journalist Glenn] Greenwald is having a cumulative effect which may reach a tipping point,” says Tom Quiggin, an Ottawa security and intelligence expert.
“The NSA runs the risk of losing the confidence of its allies and forcing allied agencies into distancing themselves from the NSA and the U.S. government.”
Meanwhile, U.S. Internet and telecommunications companies such as Cisco are now reporting slipping international sales directly attributable to the drip-drip-drip of Snowden’s unauthorized disclosures.
Microsoft moved this week to assure international customers by pledging to fight in court any attempt by U.S. intelligence agencies to seize its foreign customers’ data under American surveillance laws, one of a series of steps aimed at reassuring nervous users abroad.
Microsoft general counsel Brad Smith told Reuters the company will dramatically increase the amount of encryption it uses for internal traffic, following similar moves by Google and Yahoo after reports the NSA had illicitly tapped into their facilities overseas.
The NSA runs the risk of losing the confidence of its allies and forcing allied agencies into distancing themselves from the NSA and the U.S. government
The Five-Eyes coalition was formed under the 1946 UKUSA Agreement, which was believed to limit the ability of the partner countries to spy on each other. Ottawa’s Communications Security Establishment Canada (CSEC), the country’s premier intelligence agency, maintains a close partnership with the NSA.
The original 1946 UKUSA agreement between the U.S. and Britain was previously designed only for “foreign intelligence” operations. The draft directive appears to indicate that the agreement has changed, according to The Guardian.
“(The 1946 UKUSA) agreement has evolved to include a common understanding that both governments will not target each other’s citizens/persons” says the directive. “However, when it is in the best interest of each nation, each reserved the right to conduct unilateral Comint (communications intelligence) action against each other’s citizens/persons.”
In a later part of the draft cleared for release to the Five-Eyes countries, the document suggests there may be circumstances in which Canada, Australia and New Zealand should co-operate to allow the U.S. to target their citizens.
International law does not provide much guidance on transnational peacetime spying, says Craig Forcese, a leading expert on national security law at the University of Ottawa.
“International law rules pertaining to spying are best described as a checkerboard of principles,” he wrote in a recent blog posting. “The clearest principle is a simple expression of sovereignty preoccupations: don’t spy on the territory of another state, in violation of its laws.
“Beyond that, there is no simple rule governing the international legality of spying. This may not be a happy situation, but it is fair to say that this is the world that states have quite clearly set out to create. After all, all states spy at one time or another.”
In the long run, the real damage may be to U.S. society, concludes Quiggin.
“Ironically, it was similar spying and information collection activities of the British Crown that lit the fires of revolution in America in the 1760s. Using a new law called the ‘Writs of Assistance,’ the King’s men were able to search the homes, papers and belongings of anyone without warning and seize all information and goods,” in pursuit of smuggled contraband.