Asian firms shuffle production around the region as China tariffs hit

SEOUL/TOKYO (Reuters) – A growing number of Asian manufacturers of products ranging from memory chips to machines tools are moving to shift production from China to other factories in the region in the wake of U.S. President Donald Trump’s tariffs on Chinese imports.

Companies including SK Hynix of South Korea and Mitsubishi Electric, Toshiba Machine Co. and Komatsu of Japan began plotting production moves since July, when the first tariffs hit, and the shifts are now under way, company representatives and others with knowledge of the plans told Reuters. Others, such as Taiwanese computer-maker Compal Electronics and South Korea’s LG Electronics, are making contingency plans in case the trade war continues or deepens.

The company representatives and other sources spoke on condition of anonymity because of the sensitivity of the issue.

The quick reactions to the U.S. tariffs are possible because many large manufacturers have facilities in multiple countries and can move at least small amounts of production without building new factories. Some governments, notably in Taiwan and Thailand, are actively encouraging companies to move work from China.

The United States imposed 25 percent duties covering $50 billion of Chinese-made goods in July, and a second round of 10 percent tariffs covering another $200 billion of Chinese exports will come into effect next week. The latter rate will jump to 25 percent at the end of the year, and Trump has threatened a third round of tariffs on $267 billion of goods, which would bring all of China’s exports to the United States into the tariff regime.

The tariffs threaten China’s status as a low-cost production base that, along with the appeal of the fast-growing China market, drew many companies to build factories and supply chains in the country over the past several decades.

At SK Hynix, which makes computer memory chips, work is under way to move production of certain chip modules back to South Korea from China. Like its U.S. rival Micron Technology, which is also moving some memory-chip work from China to other Asian locations, SK Hynix does some of its packaging and testing of chips in China, with the chips themselves mostly made elsewhere.

“There are a few DRAM module products made in China that are exported to the United States,” said a source with direct knowledge of the situation, referring to widely used dynamic random-access memory chips. “SK Hynix is planning on bringing those DRAM module products to South Korea to avoid the tariff hit.”

Most of SK Hynix’s production won’t be affected, the source added, since China’s dominance in computer and smartphone manufacturing makes it by far the largest market for DRAM chips.

Toshiba Machine Co says it plans to shift production of U.S.-bound plastic moulding machines from China to Japan or Thailand in October.

The machines are used for making plastic components such as automotive bumpers. “We’ve decided to shift part of our production from China because the impact of the tariffs is significant,” a spokesman said.

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Mitsubishi Electric, meanwhile, says it is in the process of shifting production of U.S.-bound machine tools used for metal processing from its manufacturing base in Dalian, in northeastern China, to a Japanese plant in Nagoya.

In Taiwan, an executive at notebook PC maker Compal, who declined to be named, said the trade war’s impact had been limited so far, but the company was studying its options.

“We can also use facilities in Vietnam, Mexico and Brazil as alternatives,” the person said. “It won’t be easy because our majority production is in China; no other country can replace that at this moment.”

Smaller companies are exploring their options too. South Korean medical equipment manufacturer IM Healthcare, which makes products including air purifiers, is studying a move to Vietnam or South Korea if the trade conflict intensifies, a source with direct knowledge of the matter said.

Some Asian governments hope for an economic and strategic boost from the U.S.-China conflict. In Taiwan, the government is actively encouraging companies to move production out of China, pledging last month to speed up its existing “Southbound Policy” to reduce economic reliance on China by encouraging companies to move supply chains to Southeast Asia.

Taiwan economics ministry official William Liu told Reuters that the trade war was “a challenge and an opportunity” for the self-ruled island. Taiwan depends on China as an export market, he noted, but at the same time could see a boost in jobs from companies moving operations back home.

Thailand also hopes to benefit from the “flow of technology and investment leaving China during the trade war”, said Kanit Sangsubhan, Secretary-General of the Eastern Economic Corridor (EEC) Office of Thailand, which is coordinating a $45 billion project to attract investment into the country. The EEC last month took some 800 representatives of Chinese companies on a tour around the eastern industrial heartland, and the country’s Board of Investment has done seven roadshows in China this year to woo investors.

Reporting by Ju-min Park and Heekyong Yang in Seoul and Makiko Yamazaki in Tokyo; Additional reporting by Jess Macy Yu and Yimou Lee in Taipei, Patpicha Tanakasempipat in Bangkok, Sankalp Phartiyal in Mumbai and Fanny Potkin in Jakarta; Writing by Jonathan Weber; Editing by Alex Richardson

AstraZeneca CEO warns of medicine shortages after Brexit: Sunday Times

LONDON (Reuters) – Britain could see widespread medicine shortages if there is no deal to prevent friction at the border with the European Union after Brexit, the AstraZeneca chief executive told the Sunday Times.

The company said in July it would stockpile drugs as a Brexit safety net, and CEO Pascal Soriot told the Sunday Times in an interview that the complexity of the supply chain in pharmaceuticals meant that delays would be likely.

“We have products that go back and forth between the UK and Europe at different stages of manufacturing,” he was quoted as saying. “If drugs are stuck, you have a problem.”

Separately, the Sunday Times reported that Jaguar Land Rover was considering following BMW’s lead and bringing forward its annual summer factory shutdown to coincide with Britain’s departure from the EU in case there is no deal, but added no decision had been taken.

Reporting by Alistair Smout; Editing by Sandra Maler

In Nigeria, Shell’s onshore roots still run deep

BODO, Nigeria (Reuters) – Royal Dutch Shell wants to reweight its footprint in Nigeria to focus on oil and gas fields far offshore, away from the theft, spills, corruption and unrest that have plagued the West African country’s onshore industry for decades.

Graphic: Oil spills at Shell’s Nigeria operations – tmsnrt.rs/2KzACfH

But for the company that pioneered Nigeria’s oil industry in the 1950s, the Niger Delta remains as important — and problematic — as ever.

While Shell has cut onshore oil production and sold some onshore assets, it continues to invest in others. In fact, onshore production has risen in recent years as a share of Shell’s output in Nigeria, an analysis of company data over the past decade shows.

Graphic: Shell Nigeria production – tmsnrt.rs/2OB5wa0

Much of the increase comes from less polluting gas, used mainly in power generation, which Shell thinks will be key to the transition to lower carbon energy. Gas made up 70 percent of onshore production in 2017, up from 47 percent in 2008.

Graphic: Nigeria onshore production – tmsnrt.rs/2CLPxEU

The company still controls thousands of kilometers of pipelines connecting inland fields to coastal terminals through its subsidiary, Shell Petroleum Development Co of Nigeria (SPDC), however.

So while SPDC has cut oil production in the Delta by 70 percent since 2011, when it first started reporting data on spills, the incidence of spills and theft from pipelines has fallen at a much lower rate and has picked up again recently, the data shows.

Shell’s Nigeria Country Chair Osagie Okunbor hinted it was a sensitive balancing act.

  • Timeline: Shell’s operations in Nigeria

“We are too big just to see ourselves as ‘there is a problem and we have to run’. That is not what we are thinking of doing,” he told reporters on a media trip to the country in July. “But at the same time we don’t want to spread our footprint.”

Two pipeline spills in 2008 in the small community of Bodo in Ogoniland are emblematic of the problems in the Delta, a vast maze of creeks and mangrove swamps criss-crossed by pipelines and blighted by poverty and oil-fueled violence.

On a speedboat trip to the site of a clean-up operation launched by Shell last year, a makeshift oil refinery stood idle on a charred landing. The ground was soaked with oil, the air heavy with petrol fumes and slicks glistened in the water nearby. There were few signs of birds or fish.

So far this year, 85 crude spills have been recorded, already higher than the previous two years. In 2016, militant attacks pushed the volume of spills to more than 30,000 barrels, a high since 2011.

Oil theft from SPDC rose to around 9,000 barrels per day (bpd) in 2017 – a loss of nearly $180 million for the year – from 6,000 bpd the year before.

Despite all the problems and costs, however, Nigerian onshore operations generate billions of dollars annually.

Shell does not break down profits by country, but a report on payments to governments that the company publishes annually showed it paid around $1.1 billion in royalties, taxes and fees to the Nigerian government in 2017.

That means Shell earned more than $4 billion from oil and gas production in Nigeria in 2017 – around 7 percent of its total global output.

A Shell spokesman declined to comment on the specifics of Reuters’ data analysis.

The Nigerian Petroleum Ministry declined to comment.

Shell has shown it can shut down if it is not making money. It stopped producing oil completely in Iraq last year after half a century in the country, although it retains substantial gas operations.

“It’s hard to think Shell would stay put onshore and weather all the problems if the assets didn’t offer decent returns,” said Aaron Sayne, a financial crime lawyer working at the Natural Resource Governance Institute (NRGI). “To some extent, the onshore must still be worth the trouble.”

THEFT AND SPILLS

Shell remains central to Nigeria’s economy and society. SPDC – operated by Shell with a 30 percent stake while the Nigerian National Petroleum Co has 55 percent, France’s Total has 10 percent and Italy’s Eni has 5 percent – is the country’s largest oil joint venture, employing thousands.

The Anglo-Dutch giant’s operations drew unwelcome attention in the early 1990s when residents of the Delta’s Ogoni region called for fairer distribution of oil wealth and compensation for spills. The government cracked down and in 1995 executed nine protest leaders, including prominent writer Ken Saro-Wiwa, prompting Shell to end production in the area forever.

It retained control of the Trans-Niger Pipeline, however, and nearly a quarter of a century later, little seems to have changed on the ground.

In 2015 Shell accepted responsibility for operational faults that caused the 2008 spills that dumped tens of thousands of oil barrels into creeks around Bodo, and paid a settlement of 55 million pounds to villagers.

Dozens of spills since, including one by a barge carrying stolen oil that sunk in July, are frustrating remediation efforts, clean-up officials said.

“You clean it up, you walk away, somebody goes back there and does the same thing. It’s like going around in circles,” said Ogonnaya Iroakasi, Ogoni restoration project supervisor and an SPDC member.

Around 80 percent of the spills are a result of sabotage, Shell data shows.

Shell has taken a number of steps to improve the situation in the area, including training youth to start up businesses and funding local community patrols, campaigns to raise local awareness and even a local radio station.

But critics say it is not enough.

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“I am not minimizing the challenge of re-pollution but Shell are not doing enough to solve it,” said Daniel Leader, the Bodo community’s lead UK lawyer. “The pipelines are not equipped with the most basic leak detection technology and Shell is simply not present on the ground in these communities.”

Local residents are frustrated as the slow process stops many from fishing, one of the main sources of income. Much of the anger is focused on Shell but Eni has also struggled to cope in recent years. Since starting to report data to authorities in 2014, the Italian company has recorded more spills than Shell, according to Amnesty International.

“Please, don’t give up on us … I hope that you guys here can force Shell to do the right thing,” Michael Porobunu, chairman of Gokana council of chiefs, told the clean-up crew and reporters on his porch.

OFF THE COAST

SPDC has sold 10 of the 27 field licenses in the Delta it held in 2010, mostly to local companies. It has applied to renew the remaining licenses, which expire next year.

The divestments are a reminder of another cost of doing business in Nigeria – corruption. Shell has filed a criminal complaint against a former senior employee over suspected bribes in the $390 million sale of oil mining license 42 to local firm Neconde in 2011.

Offshore operations are an attractive alternative to the Delta in many ways. The Bonga field 120 km (75 miles) off the coast is one of Shell’s prized assets since starting up in 2005.

The giant tanker, with a drilling platform that pumps 225,000 barrels of oil and 210 million cubic feet of gas per day from a field one km below, won the company’s “asset of the year award” in 2016 for its safety and reliability.

Many risks remain. In 2016, the Trans-Forcados pipeline was shut down for months after militants detonated a bomb at its sub-sea section. Shell and Eni face bribery allegations in a Milan court over the 2011 purchase of an offshore license. Drilling offshore is also more expensive and technically complex.

Shell and its partners will decide next year on whether to develop a new offshore field, Bonga Southwest.

“Such an investment will reopen the window for the next wave of investment in deep water Nigeria,” Bayo Ojulari, managing director of Shell Nigeria Exploration and Production Company, said in Lagos.

Additional reporting by Alexis Akwagyiram and Didi Akinyelure in Lagos, Julia Payne in London; Editing by Sonya Hepinstall

Timeline: Shell’s operations in Nigeria

LONDON (Reuters) – Royal Dutch Shell pioneered Nigeria’s oil and gas industry and remains a major investor in the West African country. But over the decades it has come under fire over spills in the Delta region and struggles with oil theft, corruption and oil-fueled violence.

Following are some of the highlights of Shell’s history in Nigeria:

1936 – The Royal Dutch Shell Group establishes a Nigerian venture with the precursor company of BP Plc. The first shipment of oil from Nigeria takes place in 1958.

April 1973 – Nigerian government takes a stake in the venture. Over the coming years, the government increases its stake and BP exits.

1979 – The Shell Petroleum Development Company of Nigeria (SPDC) is established, incorporating assets of the older Shell-BP consortium. Over time, the Nigerian National Petroleum Corporation comes to own 55 percent, Shell owns 30 percent, France’s Total owns 10 percent and Italy’s Eni 5 percent. Shell remains the operator.

1990 – The Movement for the Survival of the Ogoni People (MOSOP), led by firebrand environmental rights activist Ken Saro-Wiwa, starts campaigning for a fairer share of oil wealth for the Ogoni people living on oil fields and compensation for environmental damage.

January 1993 – MOSOP organises protests of around 300,000 Ogoni people against Shell and oil pollution. Nigeria’s military government occupies the region.

April 1993 – Shell forms Shell Nigeria Exploration and Production Company Limited (SNEPCo), which signs Production Sharing Contracts to develop offshore oil and gas interests.

1993 – Shell ceases production in Ogoniland.

November 1995 – Saro-Wiwa and eight other MOSOP leaders are executed by Sani Abacha’s military government on alleged murder charges, to worldwide horror. Nigeria is suspended from the Commonwealth.

Late 1990s – Over time, Shell’s focus shifts to offshore exploration, where it enjoys better margins and fewer threats of attack by militants.

October 2003 – SPDC pumps more than 1 million barrels of oil per day.

2005 – Shell starts production at the giant Bonga offshore field.

2006 – Militant group MEND (Movement for the Emancipation of the Niger Delta) emerges and begins to attack Shell facilities. Like MOSOP it seeks a great share of oil wealth for the Delta’s people and remediation for oil spills. SPDC pump stations and platforms in Niger delta are attacked and production falls.

2008 – Two large spills, a result of operational faults, hit the community of Bodo in Ogoniland in the Niger Delta. Tens of thousands of barrels of oil are spilt.

January 2010 – SPDC sells some onshore fields and says it is no longer looking to Nigeria for growth.

April 2011 – Shell and Italy’s Eni acquire oil production licence (OPL) 245, a large offshore field, for $1.1 billion from local company Malabu.

August 2011 – A U.N. report criticises Shell and the Nigerian government for contributing to 50 years of pollution in Ogoniland which it says needs the world’s largest oil clean-up, costing an initial $1 billion and taking up to 30 years.

March 2012 – A group of 11,000 Nigerians from Bodo, Ogoniland, launch a suit against Shell at the London High Court, seeking tens of millions of dollars in compensation for the 2008 oil spills.

January 2013 – A Dutch court rules that Shell could be held partially responsible for pollution in the Niger Delta, saying the company should have prevented sabotage at one of its facilities. Four Nigerians and Friends of the Earth filed the suit originally in 2008 in the Netherlands.

January 2015 – Shell accepts liability for the Bodo spills, agreeing to pay 55 million pounds ($83 million at the time) to Bodo villagers and to clean up their lands and waterways.

May 2018 – Court case against Shell and Eni over the 2011 OPL 245 acquisition starts in Milan. Nine current and former executives and contractors, including ENI Chief Executive Claudio Descalzi, are accused by Italian prosecutors of paying bribes to secure the license.

Reporting by Ron Bousso; Editing by Sonya Hepinstall

Volkswagen’s Porsche to stop offering diesel models

FRANKFURT (Reuters) – Volkswagen’s (VOWG_p.DE) Porsche will stop offering diesel versions of its cars, the unit said on Sunday, sharpening its focus on hybrid and battery-powered vehicles instead.

Volkswagen has admitted to deliberately cheating diesel emissions tests, sending shockwaves through the automotive industries and causing a sector-wide crackdown on polluting diesel engines.

“Porsche is not demonizing diesel. It is, and will remain, an important propulsion technology,” Porsche Chief Executive Oliver Blume said in a statement.

“We as a sports car manufacturer, however, for whom diesel has always played a secondary role, have come to the conclusion that we would like our future to be diesel-free.”

Porsche’s existing diesel customers would continue to be served, he said.

Porsche, which is investing more than 6 billion euros ($7.1 billion) in electric mobility by 2022, said that demand for diesel models was dropping, adding their share of worldwide Porsche cars was 12 percent in 2017.

“We have never developed and produced diesel engines ourselves. Still, Porsche’s image has suffered. The diesel crisis has caused us a lot of trouble,” Blume said in a separate interview with weekly Bild am Sonntag.

German Chancellor Angela Merkel will hold a meeting on Sunday to discuss whether to require the car industry to carry out costly hardware upgrades for older diesel vehicles to reduce inner-city pollution, government sources said.

Porsche has sold diesel versions of its cars for nearly a decade, Bild am Sonntag said. It has not had a diesel in its line up since February.

About 63 percent of the group’s Panamera cars sold in Europe are hybrid models, it said. Porsche will launch the Taycan – which it says is its first fully-electric sports car – next year.

Reporting by Christoph Steitz; Editing by Sandra Maler and Louise Heavens

Dow hits new closing high ahead of index reshuffle

NEW YORK (Reuters) – Industrials led the Dow to a new closing high on Friday ahead of Monday’s major sector reshuffle, capping a week that largely shrugged off trade worries.

Trading volume spiked to the highest level since Feb. 9 in anticipation of the SP 500 sector change, when telecoms will be folded into a new sector called communications services, along with heavy-hitting stocks such as Facebook Inc (FB.O) and Walt Disney Co (DIS.N).

While the Dow closed higher, the SP 500 and the Nasdaq ended the session in negative territory. The SP and the Dow posted weekly gains, with the Dow showing its biggest weekly percentage advance in over two months. The Nasdaq lost ground on the week.

“Quadruple witching,” when stock options and futures expire, and the rebalancing of the SP 500 and the Russell 2000 indexes also contributed to heavier traffic.

“A lot of those changes have been anticipated by the index funds, and they’ve prepared for it,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “But there’s a lot going on.”

Boeing Co (BA.N), the United States’ biggest exporter to China, boosted trade-sensitive industrials .SPLRCI higher. The sector led the Dow’s advance.

Yields on long-dated U.S. Treasuries edged down on Brexit anxieties even with Federal Reserve expected to hike key interest rates next week. Financial stocks .SPSY headed lower, ending their recent rally.

“Any time there is a rate hike you potentially see a flattening of the yield curve, which is not good for financials,” said Ghriskey.

The Dow Jones Industrial Average .DJI rose 86.52 points, or 0.32 percent, to 26,743.5, the SP 500 .SPX lost 1.08 points, or 0.04 percent, to 2,929.67 and the Nasdaq Composite .IXIC dropped 41.28 points, or 0.51 percent, to 7,986.96.

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Telecoms .SPLRCL rose 1 percent on its last trading day as a discrete major SP sector, and was the index’s biggest percentage gainer.

All of the FAANG momentum stocks ended the session lower, with Facebook, Apple Inc (AAPL.O), Amazon.com Inc (AMZN.O), Netflix Inc (NFLX.O) and Google parent Alphabet Inc (GOOGL.O) down between 1.1 percent and 1.9 percent.

Shares of security and alarm company ADT Inc (ADT.N) jumped for a second day in a row, closing up 5 percent as Amazon introduced its new Alexa Guard service which could notify ADT of disturbances in the home.

McDonald’s Corp (MCD.N) rose 2.8 percent after announcing it would hike its quarterly dividend by 15 percent.

Under Armour Inc (UAA.N) gained 2.9 percent following an upgrade by JPMorgan Chase.

A 2.9 percent drop in shares of Micron (MU.O) helped pull chipmakers lower after the company said U.S. tariffs on Chinese goods would weigh on its financial results for as much as a year.

Shares of Pier 1 Imports Inc (PIR.N) plunged 19.9 percent after the home furnishings retailer cut its second-quarter forecasts.

Advancing issues outnumbered declining ones on the NYSE by a 1.04-to-1 ratio; on Nasdaq, a 1.21-to-1 ratio favored decliners.

The SP 500 posted 56 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 64 new highs and 46 new lows.

Volume on U.S. exchanges was 10.77 billion shares, nearly 64 percent higher than the 6.57 billion average over the last 20 trading days.

Reporting by Stephen Culp; Editing by Meredith Mazzilli

Lehman Brothers workers share memories 10 years after the fall

NEW YORK (Reuters) – Ex-employees of Lehman Brothers Holdings Inc met at Irish pubs near their former office in Midtown Manhattan on Thursday night to reminisce 10 years after the bank’s collapse, in gatherings with the atmosphere of high school reunions despite marking the largest failure of the financial crisis.

More than 100 traders, lawyers and recruiters who worked at Lehman shot the breeze at Connolly’s Pub and the Playwright Tavern, both blocks away from the investment bank’s old headquarters.

They recalled the best times at Lehman, which had a reputation as a scrappy underdog competing against larger rivals like Goldman Sachs Group Inc (GS.N) and JPMorgan Chase Co (JPM.N), before filing the biggest-ever U.S. bankruptcy by assets on Sept. 15, 2008.

“Who has a reunion about a bankruptcy?” joked Kevin Genirs, who was senior legal counsel at the bank. “Lehman always had a great group of people who enjoyed working together.”

Vanessa Jagenburg, who was one of Lehman’s few female managing directors in equities, recalled earning the nickname Vanna when she first joined Lehman in 1989, after “Wheel of Fortune” host Vanna White. She thinks a trader based on the West Coast bestowed the nickname because he thought she looked like the TV star, even though she was not blonde.

“It was the greatest ride of my life,” said Jagenburg, who was trading memories with former colleague Ron Gold, who worked in sales.

Reuters spoke to more than a dozen people at the two soirees, where Stella Artois beer and vodka sodas flowed freely and some attendees scarfed down hamburgers while getting updates on former colleagues’ lives. Most were dressed in business attire and said they have remained in finance, though their careers have gone in directions they would not have predicted before 2008.

Matt Lewis worked in subprime mortgages at Lehman, pitching securitizations to clients who originated loans. He now uses his skills at a boutique firm, but because the mortgage market has changed dramatically since the crisis, much of Lewis’ business has dried up.

“It’s like having worked on an assembly line at Ford,” said Lewis. “But they didn’t just move the plant or close the line down. Now everyone’s driving a hovercraft.”

After seeing many of his 26,000 Lehman colleagues lose their jobs, Darren Kimball bought an outplacement services firm, now called GetFive.

“I had a great first career,” said Kimball who worked in equity research sales and trading at Lehman. “But I don’t miss being a slave to a stock going up or down on a Tuesday.”

Reporting by Jessica DiNapoli and Josh Franklin in New York; Editing by Leslie Adler

Mexico will seek deal with Canada if NAFTA talks fail: Lopez Obrador

MEXICO CITY (Reuters) – Mexico’s incoming government will pursue a bilateral deal with Canada if talks to overhaul the North American Free Trade Agreement falter, Mexican president-elect Andres Manuel Lopez Obrador said on Friday.

After more than a year of talks to modernize the NAFTA trade pact between the United States, Mexico and Canada, the United States and Mexico reached a side deal in late August.

Days later, Canada began negotiating with the United States to close a deal on the 24-year-old trade pact. But the talks have hit an impasse over U.S. threats to impose tariffs to Canadian auto exports.

“We would like the government of the United States and the government of Canada to come to an agreement so the treaty can be trilateral, as it was originally signed,” said Lopez Obrador, a veteran leftist who takes office in December.

“But in the event that the governments of the United States and Canada do not come to an agreement … we would have to maintain the bilateral deal with the United States and seek a similar deal with Canada.”

With just over a week to go before a U.S.-imposed Oct. 1 deadline to publish the text of a deal, the United States and Canada have still not agreed on terms, White House economic adviser Kevin Hassett said on Friday.

Speaking with Fox News Channel, Hassett said the United States was getting “very, very close” to having to advance in its commercial deal with Mexico, leaving Canada behind.

Markets in all three countries have suffered amid uncertainty about the future of the pact, which underpins $1.2 trillion in annual trade.

Reporting by Diego Ore, writing by Julia Love; Editing by James Dalgleish

Adviser says U.S. close to Mexico-only NAFTA deal, Canada unmoved

WASHINGTON (Reuters) – The United States is getting “very, very close” to having to move forward on its trade deal with Mexico without Canada, White House economic adviser Kevin Hassett said on Friday.

There is just over a week to go before a U.S.-imposed Oct. 1 deadline to publish the text of a deal to update the North American Free Trade Agreement, and the United States and Canada have still not agreed on terms, Hassett told Fox News Channel.

“We’re still talking to Canada, and we’re getting very, very close to the deadline where we’re going to have to move ahead with Mexico all by themselves,” said Hassett, who chairs the White House Council of Economic Advisers.

Washington reached a bilateral trade deal with Mexico in late August and is threatening to exclude Canada if need be.

Canadian Foreign Minister Chrystia Freeland left Washington on Thursday after two days of inconclusive talks with U.S. Trade Representative Robert Lighthizer.

Asked for a reaction to Hassett’s comments, a Freeland spokesman pointed to her repeated comments that Canada “will not be driven by a deadline but by reaching a good deal”.

  • Mexico will seek deal with Canada if NAFTA talks fail: Lopez Obrador

Investor concerns over the future of the 1994 pact, which underscores $1.2 trillion in annual trade, have regularly hurt stock markets in all three countries, whose economies are highly integrated.

A senior White House official on Friday said he hoped Canada would agree to join the U.S.-Mexico trade deal by the end of the month, adding he thought U.S. lawmakers would support a bilateral deal with Mexico if that did not happen.

But Canada says it does not believe U.S. President Trump has the power to unilaterally turn NAFTA into a two-nation agreement. U.S. business groups and some senior Democrats say NAFTA must be preserved as a trilateral grouping.

Access to Canada’s dairy market, trade dispute settlement panels and U.S. demands for the ability to impose auto tariffs on its northern neighbor remain sticking points. [nL2N1W61OY]

“I’m a little surprised that the Canadians haven’t signed up yet,” Hassett said.

“I worry that politics in Canada is trumping common sense because there’s a very good deal that was designed by Mexico and the U.S. to appeal to Canada. And they’re not signing up and it’s got everybody over here a little bit puzzled.”

Freeland and Lighthizer are due in New York next week for the United Nations General Assembly, but it was unclear if they would meet.

Additional reporting by David Lawder in Washington and David Ljunggren in Ottawa, writing by David Lawder; editing by Chizu Nomiyama, Bernadette Baum and Susan Thomas

United Airlines pilots resist contract changes over regional routes

(Reuters) – United Airlines (UAL.O) pilots said they refuse to budge on the wording of their contract governing the outsourcing of regional flights.

President of the U.S. No. 3 carrier, Scott Kirby, has called for changes to the so-called “scope clause” which sets guidelines on the size of planes that can be operated by regional feeder carriers, among other things.

A scope clause restricts planes heavier than 86,000 pounds (39,000 kg) with more than 76 seats from regional routes, where pilots are generally paid less than their mainline counterparts.

“We are holding the line,” said Todd Insler, chairman of the unit of the Air Line Pilots Association that represents United pilots. “We have no intention of degrading scope.”

The United negotiations are being watched by other airlines entering labor talks, along with commercial planemakers Embraer SA (EMBR3.SA) of Brazil and Mitsubishi Heavy Industries Ltd (7011.T) of Japan, which are building new planes that are too heavy to be flown by regional carriers because they exceed the scope clause weight.

A United spokeswoman on Friday referred to earlier remarks by Kirby. Kirby has said changing the scope clause would make the carrier more competitive against rivals American Airlines (AAL.O) and Delta Air Lines (DAL.N).

Insler disagreed with that.

“We won’t use regional jets to disadvantage our mainline employees, pilots, flight attendants, anyone else,” Kirby told analysts at a conference earlier this month. “Having competitive scope, however, is really important to being the best. We can’t have one hand tied behind our back and try to compete with AA and Delta.”

Pilots have asked United to shift flights from regional carriers to the main airline because smaller carriers use less-efficient 50-seater planes and have faced problems recruiting pilots in a competitive market, according to Insler.

Major carriers have generally been reluctant to make regional flights part of the mainline operations, citing higher costs. “It’s very difficult to make those aircraft work at any mainline airline,” United Chief Financial Officer Gerald Laderman told analysts at a conference earlier this month.

Reporting by Allison Lampert in Montreal; additional reporting by Tracy Rucinski in Chicago; editing by Bill Rigby and Diane Craft